Market Update – 13th May 2020.

The FTSE-100 has opened around 1% lower this morning after US equity markets fell in the last hour of trading yesterday (12 May 2020).

The Dow Jones ended the day down 457 points, or 1.89%, while the broader S&P 500 index fell 2.05%.

US equities fell after Anthony Fauci, America’s infectious disease official, said that the US would see an increase in coronavirus cases if the US economy reopens prematurely, coupled with news that a US senator proposed a bill that would allow Donald Trump to impose sanctions on China if they did not cooperate with the investigation into the coronavirus outbreak.

It has also been a busy two days on the data front.

Yesterday’s (12 May 2020) US CPI data showed that inflation fell 0.8% in April, reducing the annual inflation rate to just 0.3%.  The core rate (which excludes volatile items such as food and energy), fell 0.4%, its biggest monthly fall on record, and in the process reduced the annual rate to 1.4%, its slowest rate since April 2011.

Among the biggest contributors to the decline were fuel prices, airfares and clothing, which fell 20.6%, 15.2% and 4.7% respectively.  However, food prices rose 2.6% and household paper products increased 4.5% as Americans stocked up.

In the UK, GDP data showed that the economy contracted by 5.8% in March and by 2% in Q1.

Although this was slightly better than expected, it is just the tip of the iceberg as the lockdown only officially started a week before the end of March – and given the current lockdowns, we wouldn’t be surprised if Q2 GDP contracts by 25 or 30%, especially as the British Retail Consortium said this morning that sales fell by 19.1% in April compared to April 2019, while Barclaycard said that its measure of consumer spending fell 36.5% – and the consumer accounts for around two-thirds of UK economy.

However, neither of these sales readings are surprising given most of the high street is closed:  Associated British Foods (the owner of Primark), recently said the closure of all its shops is costing £650m in lost sales per month, while Next recently said its full-price sales fell by 41% in the three months to 25 April 2020.

Investment Management Team