LAST WEEK – KEY TAKEAWAYS
MARKETS: MIXED WEEK FOR SHARES AS ECONOMIES PLAN TO RESTART
- Global shares rose early in the week as several European countries outlined plans for an easing of lockdown restrictions and biotech firm Gilead announced positive results from its latest tests of a potential coronavirus treatment;
- However, they handed back some of those gains as the markets recognised the return to work would be gradual and the threat of trade tensions resurfaced as US President Donald Trump blamed China for the spread of the virus.
- Omnis view: Markets welcomed the easing of restrictions as economic activity should start picking up again. Whether countries experience a second wave of infections in the coming weeks will have a bearing on the trajectory of shares.
GLOBAL: ECONOMIES SHRINK AT RECORD RATES
- The US economy contracted by 4.8% in the first quarter compared to a year earlier, its fastest pace since 2008), while nearly four million new Americans applied for unemployment benefits;
- The EU economy also experienced its worst performance in the first quarter since 2008, shrinking by 3.3% on an annual basis.
- Omnis view: The drop in economic growth was widely expected, but worse could be to come in the second quarter. Western economies only started slowing down in March, but activity effectively came to a halt in April.
CENTRAL BANKS: INTEREST RATES REMAIN AT RECORD LOWS
- The Federal Reserve (US central bank), the European Central Bank (ECB) and the Bank of Japan (BoJ) decided to leave interest rates unchanged after meeting last week;
- The ECB took steps to encourage the region’s banks to keep lending money, while the BoJ announced it would increase its programme of buying bonds- known as quantitative easing- and expand it to company bonds.
- Omnis view: All three central banks warned about the economic impact of the coronavirus pandemic but said they were ready to take further measures if necessary to support the recovery.
CORPORATE EARNINGS: AMAZON AND APPLE UNCERTAINTY WEIGHS ON MARKETS
- Shares in Facebook and Alphabet (parent company of Google) rose after both companies reported sales had stabilised in April following a challenging end to first quarter caused by the coronavirus pandemic;
- Amazon shares fell as the e-commerce giant warned that rising costs could offset its surge in profits during the lockdown;
- Apple beat sales expectations but the iPhone maker’s shares dropped as it could not provide guidance for profits in the second quarter.
- Omnis view: The uncertain outlook for Amazon and Apple weighed on the US markets as they are two of the biggest listed companies. Overall, profits generated by US companies in the first quarter are expected to drop by 13.7%, an improvement on the previous week’s forecast of 15.8%.
COMMODITIES: PROSPECT OF RETURN TO WORK BOOSTS OIL PRICES
- Oil prices fell at the start of the week and then fluctuated as concerns of oversupply and a lack of storage facilities lingered;
- However, they recovered as European governments outlined plans to restart their economies.
- Omnis view: A subsequent rise in demand for oil will boost prices and have a positive knock-on effect on energy-heavy stock markets like the FTSE 100.
LOOKING AHEAD – TALKING POINTS
- Tuesday- US imports, exports and balance of trade in March;
- Thursday- Chinese imports, exports and balance of trade in April;
- Friday- US non-farm payrolls (job creation) in April.
- Thursday- Bank of England interest rate decision.