Stock markets around the world have slipped back to some extent over recent days, but have largely managed to hold on to the solid gains they clawed back last week. Coronavirus-related uncertainty continues to mean high levels of volatility, and no one expects that picture to change for weeks, if not months. But while it is undoubtedly the dominant driver of investor sentiment, the pandemic is not the only factor at play.
Oil
Developments in the oil supply dispute between Russia and Saudi Arabia, two of the world’s biggest producers, also had a significant impact on share prices this week. On Monday 30 March, futures in Brent Crude were trading at less than $23. This is their lowest price for almost two decades, a consequence of both the price war between the nations and the widespread fall in demand that is expected to result from a coronavirus-driven global economic slowdown.
On Thursday 2 April, however, oil prices staged a major recovery – with futures pushing back towards the $30 mark. This was after US president Donald Trump announced he had spoken to his opposite numbers in Moscow and Riyadh and expected a resolution to the dispute – and a substantial cut in production – to be agreed in the next few days.
The us
By the end of trading on Thursday 2 April, US markets were down slightly for the week, with the Dow Jones Industrial Average down 1% and the S&P 500 0.6% lower than their closes on Friday 27 March. Investors on Wall Street were again happy to ignore the dire economic data coming out of the US economy, most notably the fact that on Thursday 2 April it was reported that new unemployment claims doubled last week to well in excess of six million.
By and large, investors all over the world have now priced in a significant economic downturn across most, if not all, sectors as a result of the pandemic. This means new figures relating to the likes of manufacturing output or jobless claims are considerably less likely to move markets than they might be in other circumstances.
Both the Dow and S&P 500 fell sharply on Wednesday 1 April after US politicians warned that the most acute phase of the coronavirus crisis was still to come. But the rebound in the oil price the next day pushed both indices higher, with the likes of Chevron and Exxon unsurprisingly making major gains.
The UK
In the UK, advances for fellow oil firms BP and Shell helped the FTSE 100 to offset some of the losses made earlier in the week, as the index closed on Thursday 2 April down 0.5% for the week so far.
On Tuesday 31 March, the FTSE closed at 5,672 points, which meant that, like many stock markets around the world, it had posted one of its largest quarterly falls on record. In fact, this was the index’s worst three-month performance since the aftermath of the Black Monday crash in 1987. Shares in London fell sharply the next day after regulators told the UK’s banks to suspend dividends and share buybacks in order to preserve cash to help them and their customers deal with the crisis.
Europe
In Europe, the DAX in Frankfurt was down 0.6% by close of Thursday 2 April, while the CAC 40 in Paris had lost 3% –French aerospace firms Safran and Airbus both dragging the index down in recent days.
One issue that is likely to loom large over eurozone markets in coming weeks concerns how the European Central Bank should support the members hit hardest by the coronavirus crisis. Italy and Spain, as well as France, Belgium and Ireland, are putting pressure on the ECB to issue joint debt – dubbed coronabonds – to help protect and eventually rebuild devastated economies.
At the moment, however, resistance to this proposal is strong, most notably from more fiscally prudent states such as Germany and the Netherlands. The way in which this dispute plays out has the potential to affect investor sentiment as we move forward.
27/03/2020 | 02/04/2020 | Change (%) | |
|---|---|---|---|
FTSE 100 | 5510.3 | 5480.2 | -0.5 |
FTSE All-share | 3021.9 | 2998.5 | -0.8 |
S&P 500 | 2541.5 | 2526.9 | -0.6 |
Dow Jones | 21636.8 | 21413.4 | -1
|
DAX | 9632.5 | 9570.8 | -0.6 |
CAC-40 | 4351.5 | 4221 | -3 |
ACWI | 436.6 | 431.3 | -1.2 |
Note: all market data contained within the article sourced to Bloomberg, as at 2 April 2020
