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Weekly Focus - 12 May 2020

Weekly Focus                         12 May 2020

Lower base effects will be a tailwind for growth in 2021
 

 

All major indices gained during the past week as investors focused on the gradual reopening of economies and the fiscal and monetary stimulus measures. Within the S&P500, the cyclical segment led with the technology sector gaining most as shares of Apple rose; small capitalisation indices also rebounded but the Utilities and Real Estate sectors lagged. Long term US bond yields increased by 10 basis points after the Treasury announced it will borrow a record USD 2.99 trillion during quarter 2. This represents nearly 1.5% of GDP but the Eurodollar rate remained range-bound within 1.08 to 1.10.

 

The European Commission announced that GDP for the Eurozone would contract by 7.75% this year and would rebound by 6.25% next year. They estimate that risks remain tilted to the downside on account of the uncertain medical situation. The high US unemployment level of 14.7% is being interpreted as temporary as a vast majority of respondents of a survey said they expect to be rehired within six months. This tallies with most estimates that global growth will rebound as aggregate demand picks up in the second half of the year.

 

The critical 12 month forward PE ratio for the S&P500 is 20.4, its highest level since 2002 (detailed sector chart above). The calendar year 2020 bottom up estimates by Factset as of last Friday is a contraction of 20%. The downgrade cycle is not yet over as the second quarter contraction will reduce earnings further. However the base effect for 2021 will be a strong tailwind and can cause a fall in the elevated 12 month forward PE ratio and support higher equity indices.

 

On the asset class side, large cap equities and investment grade credit remain favoured for now. But a rotation into cyclical, European stocks and Japan would be an indication that the market is ready for the next leg higher.

 

 

Value

1 Week

YTD

Equity Indices

 

 

 

S&P500

2,930

3.06%

-9.32%

FTSE JSE All Share

51,004

3.69%

-10.65%

Stoxx50

2,908

3.25%

-22.35%

FTSE100

5,936

3.17%

-21.30%

DAX

10,904

4.18%

-17.70%

CAC40

4,550

3.92%

-23.89%

SMI Index

9,665

2.93%

-8.96%

FTSE MIB

17,439

2.37%

-25.81%

Shanghai Comp

2,893

1.18%

-5.12%

BSE Sensex

31,957

0.89%

-22.44%

Nikkei

20,458

4.27%

-13.52%

Major currencies

 

 

 

USDZAR

18.26

-1.75%

30.42%

EURUSD

1.08

-0.61%

-3.30%

GBPUSD

1.24

-0.22%

-6.36%

USDCHF

0.97

0.60%

0.30%

EURCHF

1.05

0.00%

-3.00%

GBPZAR

22.67

-1.91%

22.12%

EURGBP

0.87

-0.40%

3.33%

USDAUD

1.53

-1.84%

7.24%

Dollar Index

100

0.20%

3.86%

 Commodities 

 

 

 

Brent

30.60

12.57%

-53.61%

WTI Oil

24.43

19.96%

-59.94%

Copper

2.41

4.05%

-13.69%

Platinum

791.60

1.40%

-18.59%

Sugar

10.30

-0.96%

-23.25%

Corn

322.12

3.66%

-16.93%

Gold

,705.50

-0.47%

11.08%

 Sovereign Yields

 

 

 

US10Y

0.69

9.75%

-63.94%

UK10Y - price

137.85

0.08%

4.92%

Germany10Y

-0.54

-4.85%

188.77%

 Deposit rates with selected banks

 

The MCB Ltd, 6M USD 1.20%

 

 

 

 
Contact us: Durban +27 (0) 31 566 3365 | CPT +27 ( 0 ) 21 851 0920 | JHB +27 ( 0 ) 11 017 7230 | Email: enquiries@pwm-wealth.com
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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