Market Update – 26th March 2020.

Market optimism was sustained for a second consecutive day yesterday (Wednesday 25 March 2020), thanks to the fact that the US Senate unanimously approved the $2tr fiscal stimulus package (which provides support for households via direct transfers, expansion of unemployment benefits and funds to help businesses affected by the effects of the coronavirus outbreak).

As we said yesterday, although this stimulus package should help put a floor under share prices as it should limit the damage to the economy (i.e. the economic shock should be short and sharp, followed by an economic recovery towards the end of the year, rather than a severe and protracted global downturn), we do expect global equity market volatility to remain elevated as there are still many risks ahead.

One of the dangers is that the worst of the economic data is still to come – and today’s worse than expected 10.6% contraction in Singapore Q1 GDP clearly highlights that economic data from around the globe is only going to get worse in the coming weeks and months.

We should see the damage the coronavirus outbreak is starting to create in today’s US jobless claims.

We believe the reading could easy surge to well over 1 million from last week’s reading of 281,000 given the high number of US employees that have jobs with a high risk of layoff (such as restaurants, hairdressers, retail and manufacturing).

However, this estimate is a bit of a finger in the air estimate, as Donald Trump has been arguing that the US will be back up and running by Easter, which may have persuaded many employers to just send their workers home on full pay instead of laying them off.

As a result, depending on the extent of the deterioration we could see a large move this afternoon in equity markets either up or down depending on the actual reading.

In the UK, the BoE meet today.  However, after their recent emergency interest rate cuts and their reluctance to take interest rates below zero, we aren’t expecting any further interest rate reductions – so we will just be looking for insight into their assessment of the virus’s impact on the UK economy.

Investment Management Team

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