Duncan Donald

Mon, Apr 20

Optimism persists as steady progress is made in the global stock markets

As we touched on last week, there remains optimism in the markets in the fight with the global pandemic Covid-19.  Whilst the UK and US seem to have taken over as the current epicenter of the virus, the green shoots of recovery are coming across Europe, as both new cases and deaths steadily fall. Obviously, having had a delayed start to the effects of the Virus, that lagging effect still has the UK and US centered in the eye of the storm, but despite this, there has been some flattening and easing in the worst affected areas, it's too early to think the worst may be behind us, but of course this remains positive news for beleaguered health systems and economies.


In reflection of the above stock markets continue to gradually claw back the drop seen when the virus hit Italy, with the US S&P having regained more than 50% of the drop that was seen since the lows . Last week was a pivotal week, with the markets starting the week having finally regained a bid tone the question we asked last week was, will those who were waiting for dips to buy again and those who were short speculating a further lurch to the downside be forced to cut and buy? It would appear the answer to that was yes, and even in spite of an incredible 22 million freshly unemployed in the last month in the US due to the lockdown.


The markets were also buoyed by news that a Chicago based hospital was having success in treating Covid patients with e Gilead Sciences drug creating the biggest single move seen last week.  Therefore, the optimistic question being currently asked is, if we are to believe things can and are getting better how soon we can take the initial steps towards normalization. In Europe we are naturally closer to this with Germany already looking to implement tentative steps to lift lockdown. In the UK what seemed a deliberate leak to test the water regarding the reopening of Schools was quickly denied by Michael Gove yesterday. In the US Trump had to back down after initially saying he would decide when the collective states remove lockdown only for the governors to rise against him. For now, whilst the lockdowns remain widely in place the optimism that an end is coming is enough to assure stocks, and a normalization in a low interest rate environment and an economy eventually awash with Central Bank money, should ultimately lead to short to medium term upside, but of course, a long term inflation issue!


In FX the US Dollar was the main benefactor of the optimism last week gaining against most currencies and even against what has become a resurgent Gold in the weeks prior as it retreated from the 1750 highs to 1675. Despite the positive inroads made following the OPEC meeting as the main supply nations agreed to a 10% reduction in supply Oil starts the week off another 25% lower than the $20 per barrel as demand remains the biggest concern, with Air travel looking to be decimated for a good while, even after lockdowns are lifted, and with Australia indicating they may not permit inbound flights for the rest of the year.


In the week ahead the focus will remain on the virus and the unemployment data, with data from the UK and US on Tuesday and Thursday respectively.  Whilst we are in the midst of earnings season, as suspected they are not offering a great deal of surprise with relatively poor numbers and of course rather bleak unknowing outlooks. It's looking like next quarter we will get the real insight as companies have hopefully dealt with the pandemic impact, and their financial health and outlook is more transparent.


The Week Ahead:


  • PPI – Ger
  • Chicago Fed National Activity Index - US


  • Unemployment Rate – UK
  • ZEW Economic Sentiment – Ger, Eurozone
  • Retail Sales – US
  • Existing Home Sales – US


  • Inflation Rate – UK
  • Retail Price Index – UK
  • Government Budget to GDP – Eurozone
  • House Price Index – US
  • Consumer Confidence Index – Eurozone
  • Oil Production Data - US


  • Service PMI – Japan
  • Retail Sales – UK
  • GfK Consumer Confidence – Ger
  • Manufacturing PMI – Ger, Fr, Eurozone, UK, US
  • Jobless Claims – US
  • New Home Sales – US


  • Ifo Business Climate – Ger
  • Durable Goods Orders – US
  • Michigan Consumer Expectations – US