Market Monitor – 24 April 2020
Insights

Market Monitor – 24 April 2020

Oil has been the big story for global stock markets this week, and declining crude prices have hit Wall Street particularly hard. The downturn in economic activity caused by the coronavirus pandemic has already led to a massive reduction in demand for oil – regardless of the output cuts agreed between Russia and Saudi Arabia, two of the world’s biggest producers, earlier this month.
This slowing demand led to a crunch at the start of this week as the industry started to run out of stockpiling capacity – particularly in the United States, where most oil storage is land-based and there is far less scope to store unwanted oil at sea. At one point on Monday, US oil futures for May entered negative territory – for the first time on record – reflecting the fact that traders simply have nowhere to put any oil they buy.

Markets

So what did this mean for stock markets? On both sides of the Atlantic, a number of the biggest companies are oil producers and their losses dragged indices down. In the US, for example, Exxon lost almost 5% of its value while Shell in the UK was down 4.2%. The Dow Jones Industrial Average lost 2.7% on Tuesday, while the S&P 500 was down 3.1% – ground that both indices struggled to make up during the rest of the week prior to Thursday’s close. Oil prices and oil company values have managed to rebound to some extent since Monday – the US government has made it clear it will make every effort to support the industry – but oil’s decline reflects wider concerns about the world economy’s ability to bounce back quickly from the coronavirus crisis.
As lockdown rules start to be eased in the Far East and parts of Europe and the US, it is clear that some restrictions will remain in force for the foreseeable future: but at present it is not clear what impact these restrictions will have on economic activity.

The UK

In the UK, the FTSE 100 closed on Thursday slightly ahead for the week, despite dreadful PMI data which showed just how devastating Covid-19 has been for the economy to date. British housebuilders started the week badly with data showing UK house prices had fallen, but the sector was subsequently buoyed by the news that Taylor Wimpey was expecting to resume construction in early May.

The UK released inflation figures for March 2020 this week, with CPI falling back to 1.5%1 – a figure that is expected to drop further in the months ahead, especially as a result of weakening energy prices.

Europe

In Europe, both the DAX in Frankfurt and the CAC 40 in Paris were down around 1% for the week by Thursday’s close. As in Britain, European PMI data was even worse than expected, but there were some grounds for optimism among investors as details of how the likes of Germany, Italy and Spain might emerge from lockdown became more concrete.

The outcome of Thursday’s virtual EU leader summit, where the bloc agreed a massive financial stimulus package for the economies hit hardest by the pandemic, was not known before the close of trade on the day. But there remain questions over how the EU will fund this support in the longer term, with more financial responsible countries such as Germany and the Netherlands continuing to resist calls from the likes of Italy and Spain to issue joint debt.

Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 23/4/2020.
17/4/2020
23/4/2020
Change (%)
FTSE 100
5787.0
5826.6
0.69
FTSE All-share
3190.2
3205.7
0.48
S&P 500
2874.6
2805.7
-2.39
Dow Jones
24242.5
23590.2
-2.69
DAX
10625.8
10513.8
-1.05
CAC-40
4499.0
4451.0
-1.07
ACWI
480.3
470.6
-2.01
20 April 2020
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Market Monitor – 24 April 2020

1 Consumer price inflation, UK: March 2020, ONS, 22/4/2020.

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