I hope this finds you well and safe at home (for another 3 weeks at best).
This week we have seen a wide range of information released and while some of it has been rather bleak, there has also been many positives which have caused markets to continue their rally. World stock markets made a sprint towards a second straight week of gains today after President Donald Trump laid out plans to gradually reopen the coronavirus-hit U.S. economy following similar moves elsewhere and news of reports that patients with severe COVID-19 symptoms had responded positively to a drug made by U.S. company Gilead Sciences.
Economic and corporate data was always going to be very poor and therefore the reaction by markets to confirmations of this fact are more to do with the general mood of the market than the data itself. The best example of this is the initial jobless claims report which has been the blockbuster data set when it comes to the impact of the virus and one that was released yesterday. We have seen over 16 million people file for support in the last three weeks, however on each of the days we have seen the jobless figures released the US market has rallied by at least 2% with one day over 6%. As a result, we firmly believe that the duration of the lockdowns is the primary focus of the market rather than data, be it corporate or economic. New case growth and governmental progress towards exit strategies will dominate the medium-term trend for equities.
The world continues to closely watch China, and also now the experiences of those European countries entering into the first phases of exit from lockdown.
China’s first quarter GDP was every bit as bad as investors expected but the March activity in the world’s second-biggest economy gives some cause for optimism.
What we have seen in China may give us some indication as to what could be experienced in other parts of the world where we see effective containment strategies, curves flattening and economic activity returning. We have also seen globally strong levels of government and central bank intervention, particularly in the US and Europe and these may help to support growth over the medium term.
Since the first quarter ended, China has seen a strong recovery, both in consumption and fixed asset related activities. There was an announcement that schools would reopen, and we have seen the lifting of restrictions on people being able to leave Wuhan. More broadly we saw 90 per cent of people return to work by the second week of April, and 90 per cent of construction activity restarting, especially in the context of infrastructure related projects.
China’s worst quarterly contraction in decades was largely in line with low expectations: overall GDP slumped 6.8 per cent year-on-year in the first three months and was down about 10 per cent from the previous quarter. What really matters now is the pace of recovery following its lockdowns, which will serve as a bellwether for the rest of the world.
While households still seemed to be struggling in March, we see rather good news in the Chinese corporate and industrial sectors. State-owned enterprises are driving a rebound in investment activity, real estate is picking up, and manufacturers are quickly recovering with the outbreak now under control. Across the board, we are seeing signs that this is an economy very much emerging from the phase of economic activity being heavily restricted, as it dealt with the containment of the virus, and starting now to move into more normal activity patterns. The best news came in industrial production numbers, where the fabled ‘V-shaped’ recovery seems to be materialising. March saw an unprecedented 32 per cent month-on-month bounce, taking output to within a whisker of 2019 levels after a horrific start to the year.
We shall continue to keep you updated, we are operating efficiently from our home bases and our message is still very much ‘sit tight and wait for the recovery’. As always, if you wish to get in touch to discuss any aspects of your investment portfolio, please do not hesitate to contact me. It is a new tax year with new pension and ISA allowances, and I believe there are some very good reasons to invest now should you have the capacity.
To contact us by telephone, please call:
Ashford office: 01233 646 666
Hastings office: 01424 457 080