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Week in review – April 3rd 2020

Markets have mirrored the movements of the tide. The bottom line is that it’s been one step forward and two steps back. A few months ago people were worried about a prolonged Brexit. The shift now is to how long will this lockdown last for. From an Irish perspective one has to consider the future impact on taxes for us all following Leos stimulus policy.
Economic indicators are particularly dismal. Unemployment rates have soared, business confidence is very low. Positive sentiment recedes daily. Companies have provided very uncertain outlook statements and many have announced dividend cuts.
On the other hand, the steps taken by central banks, notably the Federal Reserve in the US and the ECB in Europe, both stepping in to provide major supports to bond markets, have helped to stabilize things somewhat. The talk of “helicopter” money has been met with differing responses.
However, the elephant in the room is what long term damage faces the major economies as a result of a prolonged lockdown. A sustained shutdown of economic activity will have a terminal effect on many small businesses and many will never reopen in the absence of Government supports. There are limits to what governments can and will do even in extreme circumstances and unlimited support for small businesses is unlikely to be a feature for more than a few months. One emerging view is that Governments will differentiate between sectors which are seen as strategically important (Healthcare, Energy and Food for example) and non-strategically important sectors (Leisure, Travel and Media for example) and gradually shift their supports in the direction of the former.
Reality has not yet fully hit home in the US just yet as to potential duration of the virus and the resulting death toll. When it does, it is hard not to see a further market decline. The table below shows key market performances year to date expressed in euros.
Market Perf. YTD (euro terms)
Ireland  -23%*
UK  -27%*
Japan  -20%*
Europe  -28%*
US  -23%*
China  -16%*
*Source: Financial Times, Financial Express
Commodities have had a take up along with short term bonds. Investors are standing on the sidelines waiting to pounce. They don’t know where the bottom of the market is though unfortunately. Until some stability ensues there won’t be a big change in the take up of asset classes. Investors will be happy to miss waive one of an upturn I feel on this one!
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