LAST WEEK – KEY TAKEAWAYS
MARKETS: MIXED WEEK FOR SHARES AS OIL PRICES FLUCTUATE
- Global shares fell at the start of the week as oil prices dropped and reports emerged that an antiviral drug disappointed in clinical trials;
- However, the markets recovered as oil prices rebounded after US President Donald Trump stirred tensions in the Middle East and the US announced new measures to support its economy (see below).
- Omnis view: The markets are likely to remain sensitive to short-term developments as they wait for some clarity on when and to what extent countries will start to ease lockdown restrictions.
US: MORE GOVERNMENT SPENDING ANNOUNCED
- US politicians announced further measures worth nearly half a trillion dollars to help the country deal with the coronavirus pandemic, including fresh funding targeted at small companies;
- Meanwhile, over four million new Americans registered for unemployment benefits, according to the US Department of Labor.
- Omnis view: The markets welcomed the latest measures which should protect businesses and jobs, while the number of claims for unemployment benefits fell for the first time since US economic activity started slowing in mid-March.
COMMODITIES: MIDDLE EAST TENSIONS BOOST OIL PRICE
- Oil prices plunged at the start of the week as lower demand due to the decline in economic activity led to concerns of oversupply and insufficient storage facilities;
- They recovered after President Trump told the US navy stationed in the Persian Gulf to react aggressively to provocation by Iranian forces.
- Omnis view: Tensions in the Middle East may disrupt supply, but not enough to make up of the loss of demand caused by the global lockdown. Oil prices should remain low until economic activity picks up again, although cuts to output due to come into effect in May should help.
UK: SIGNS EMERGE OF ECONOMIC IMPACT OF PANDEMIC
- Spending by UK shoppers fell by a record 5.1% in March, according to the Office for National Statistics, after social distancing guidelines were introduced;
- An early estimate published by research firm IHS Markit showed UK business activity slowed to historic levels in April.
- Omnis view: These figures are early indicators of the impact of the coronavirus on the UK economy and will put pressure on the Prime Minister to outline the government’s strategy for easing restrictions and letting people return to work.
EU: BUSINESS ACTIVITY HITS RECORD LOWS
- An early estimate also indicated business activity in Europe shrank in April to its lowest level since IHS Markit started measuring in 1998.
- Omnis view: The markets will closely monitor talks between EU leaders as they try to agree on measures which would help the region’s economy recover once lockdown ends.
JAPAN: EXPORTS DROP IN MARCH
- Japanese shares fell as figures released by the country’s Ministry of Finance showed exports (products produced in Japan but sold abroad) shrank by 11.7% in March compared with a year earlier.
- Omnis view: The Japanese government said it was allocating another8.9 trillion yen (£80 billion) to support the domestic economy, which would include handing cash straight to its citizens.
CORPORATE EARNINGS: NETFLIX BENEFITS FROM LOCKDOWN
- Shares in Netflix rose after the streaming service beat sales expectations in the first quarter thanks to a flood of new customers seeking to alleviate the boredom of being stuck at home.
- Omnis view: The outlook has worsened overall, with profits generated by US companies expected to drop by 15.8% in the first three months of the year compared to 14.8% the previous week.
LOOKING AHEAD – TALKING POINTS
- Tuesday- Japanese unemployment rate in March;
- Wednesday- US economic growth in the first quarter;
- Thursday- EU unemployment rate in March, inflation rate in April and economic growth in the first quarter.
- Wednesday- Federal Reserve interest rate decision;
- Thursday- European Central Bank interest rate decision.
- Several of the world’s biggest technology companies report first-quarter profits, including Facebook, Apple, Amazon, and Google’s parent Alphabet.