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MARKET UPDATE: SHARES TENTATIVELY LOOK AHEAD TO GLOBAL RECOVERY

MARKETS: EASING OF LOCKDOWN AND PROMISING DRUG TRIALS BOOST SHARES

  • Global shares finished higher despite disappointing results from companies reporting first-quarter profits and concerns about the impact of the coronavirus on the world economy (see below);
  • The markets put a greater emphasis on the easing of some social distancing measures in Europe and reports of a promising trial of a treatment for the virus.
  • Omnis view: As the rate of new cases appeared to stabilise in many countries, the markets are starting to look ahead to when business activity picks up again, as we are currently witnessing in China. The unprecedented steps taken by governments and central banks in response to the crisis should accelerate the recovery.

CHINA: SHARP FALL IN ECONOMIC ACTIVITY

  • Figures released by China’s National Bureau of Statistics showed the toll that the coronavirus took on the country’s economy in the first quarter of the year as it shrank by 6.8%[1].
  • Omnis view: Focus will now turn to how the Chinese economy performs for the rest of the year and what steps the government will take to support the recovery. The country’s central bank took pre-emptive action by cutting interest rates before the slowdown in the first quarter was announced, and it may launch additional measures when it meets this week.

US: EARLY SIGNS OF VIRUS WEIGHING ON ECONOMY

  • There was further evidence of the impact of the coronavirus on the US economy as another five million Americans applied for unemployment benefits[2], while industrial activity and retail sales slowed to record lows in March.
  • Omnis view: It is too early to assess the full economic impact of the virus outbreak as the US went into lockdown later than other countries. However, these figures do not bode well for the short-term outlook, particularly the rise in unemployment.

CORPORATE EARNINGS: PROFITS TUMBLE AT US BANKS

  • Earnings season got off to a disappointing start as profits dropped in the first quarter of the year at some of America’s biggest banks, including JP Morgan, Wells Fargo, and Morgan Stanley.
  • Omnis view: US banks typically set the tone for earnings season, although expectations were already low as the coronavirus brought many economies to an effective halt. Overall, earnings among US companies are expected to fall by 14.5% in the first quarter, according to research firm FactSet[3].

COMMODITIES: OIL PRICES DROP AS DEMAND RECEDES

  • Oil prices fell as concerns about the decline in demand due to the coronavirus crisis overshadowed the cuts to production agreed by the Organization of the Petroleum Exporting Countries (OPEC) and its partners.
  • Omnis view: Oil prices should remain low until the global economy starts to recover, which will weigh on energy-heavy stock markets like the FTSE 100. Increasing industrial activity in China may provide some support.

LOOKING AHEAD – TALKING POINTS

ECONOMIC DATA

  • Tuesday- UK unemployment rate in February;
  • Wednesday- UK inflation rate in March;
  • Friday- Japanese inflation rate in March.

BREXIT

  • The latest round of negotiations between the UK and the EU start on Monday, with the UK insisting that there will be no extension to the transition period.

CORPORATE EARNINGS

  • Netflix is the first of the major technology firms to report profits as earnings season continues.