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Weekly Focus - 13 April 2020

Weekly Focus                      13 April 2020

 

Labour market weakness forces US FED to act
 

 

After suffering heavy losses since March, equity indices rebounded during the past week. It is unclear yet if this is a bear market short squeeze as it happened at a time when macroeconomic data has started to deteriorate sharply. There seems to be two catalysts for the improved sentiment (i) on the medical front, new hospitalisations in New-York is decreasing and both the rate of fatalities and infection are improving in France, Spain and Germany. Also, the widely followed epidemiology prediction model of the University of Washington significantly lowered the expected number of fatalities in the US and Italy announced that it will end some parts of the lockdown on May 4. (ii) On the financial front, news emerged of another stimulus package which would include direct payments to individuals, extended unemployment insurance and new loans to small businesses. Nevertheless it was the announcement of the US FED in the face of deteriorating labour markets which caught the eye (chart above); a package of USD 2.3 tn in loans to small businesses and municipalities and the promise of buying lower quality debt in fixed income markets.

 

No doubt the FED announcement came as a result of second round contagion effects of the lockdowns to businesses and consumers. The number of people filing for jobless claims exploded well above consensus estimates and the 17 million job losses since March make up nearly 10% of the entire workforce. PIMCO estimates that US GDP will contract by 5% this year. Across the pond, Eurogroup Finance ministers agreed to a EUR 500 bn stimulus package which will help mitigate the effects of the downturn.

 

While the overall situation remains unclear, it is worth remembering that just a few weeks ago there were proposals to shut down volatile stock exchanges and panic as to how covid-19 tests would be funded in the US. Therefore we should not underestimate the ability of businesses to innovate; restaurants could offer explicit table cleaning protocols or less dense seating to boost demand. Airlines could fly with empty middle seats and hotels could screen their clients to satisfy health protocols.

 

 

 

Value

1 Week

YTD

Equity Indices

 

 

 

S&P500

2,790

4.74%

-13.65%

FTSE JSE All Share

48,012

3.83%

-15.89%

Stoxx50

2,893

3.46%

-22.76%

FTSE100

5,843

4.66%

-22.54%

DAX

10,565

4.86%

-20.26%

CAC40

4,507

3.70%

-24.61%

SMI Index

9,453

-0.10%

-10.96%

FTSE MIB

17,622

3.42%

-25.03%

Shanghai Comp

2,783

0.69%

-8.76%

BSE Sensex

30,690

11.23%

-25.61%

Nikkei

19,043

2.51%

-19.50%

Major currencies

 

 

 

USDZAR

18.08

-3.19%

29.20%

EURUSD

1.09

1.13%

-2.65%

GBPUSD

1.25

2.13%

-5.81%

USDCHF

0.97

-1.20%

-0.09%

EURCHF

1.06

-0.08%

-2.74%

GBPZAR

22.59

-1.11%

21.64%

EURGBP

0.87

-0.98%

3.41%

USDAUD

1.58

-3.92%

10.83%

Dollar Index

100

-1.22%

3.61%

 Commodities 

 

 

 

Brent

31.35

-5.66%

-52.76%

WTI Oil

22.93

-12.42%

-62.59%

Copper

2.33

4.07%

-16.73%

Platinum

748.05

0.07%

-23.15%

Sugar

10.43

-0.19%

-22.28%

Corn

331.38

1.03%

-14.60%

Gold

1,741.25

2.72%

13.77%

 Sovereign Yields

 

 

 

US10Y

0.72

6.54%

-62.38%

UK10Y - price

136.83

0.22%

4.15%

Germany10Y

-0.35

-17.79%

86.63%

 Deposit rates with selected banks

 

The MCB Ltd, 6M- USD 1.20%

 

 
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Disclaimer: The research report has been prepared for information purposes and does not constitute an offer. While reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and the company accepts no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this report
 

 



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