Market Update

Most major global equity markets closed the week on a positive note, an outcome that might appear perplexing given the bleak economic data unveiled: the US witnessed job losses totaling 22 million in the past four weeks, top US banks set aside $25 billion for bad debts, China reported its first quarterly economic contraction since 1992, and the IMF projected a 3% decline in the global economy this year. However, this data merely reaffirms what was already known—the global economy has come to a halt.
Market optimism stemmed from Donald Trump's phased, state-by-state guidelines for reopening the economy and several European countries, including Austria, Denmark, Italy, Spain, and Germany, taking cautious steps toward reopening. Even though the US and most of Europe remain closed for now, the end of lockdowns is visibly on the horizon. Focusing on the likely duration of the economic decline rather than its depth becomes paramount, as once the lockdowns are lifted, global economic recovery is expected to swiftly commence.
Moreover, with bleak economic data and corporate earnings expectations already factored into market prices, any positive signs ignite optimism and contribute to higher equity markets. L'Oréal, a key consumer stock, reported a bounce back in sales once the lockdowns in China were lifted, aligning with the belief in a V-shaped economic hit and recovery globally.
While a return to complete normalcy may take time, glimpses of progress indicate a light at the end of the tunnel. However, heightened equity market volatility is anticipated, particularly as more US companies release their results this week. Data-wise, the UK will focus on employment figures, CPI inflation, and retail sales, while the US will pay close attention to weekly jobless claims and April PMI data.
The FTSE-100 began the week on a positive note following encouraging signs, including slowing coronavirus spread in New York and reduced hospitalizations. Germany also announced the start of its economic reopening, and speculation circulated about a potential breakthrough in the next US economic stimulus package. Additionally, reports from South Korea indicated bustling activity in shops, cafes, and parks after the lifting of lockdown restrictions, further bolstering the belief in a sharp but temporary economic downturn followed by a rapid recovery—a V-shaped recovery.
Nevertheless, the FTSE-100 experienced a downturn due to falling oil prices, primarily driven by concerns over poor demand and storage space limitations. As of now, the FTSE-100 is down 50 points, or 0.86%, at 5,737, while US West Texas Intermediate (WTI) trades just below $13, its lowest level since March 1999, and Brent crude is below $27 per barrel.