Market Update

Global equity markets experienced a week of fluctuating gains and losses before finishing slightly lower. The prevalent theme continued to be volatility and uncertainty, influenced by mixed coronavirus news, oil prices, economic data, and US Q1 company earnings.
Despite the extremely poor economic data, it didn't offer new insights, merely confirming what was already known—the global economy has come to a standstill. Notably, the historic drop in oil prices, the UK Purchasing Managers' Index (PMI) reading, and the significant job losses in the US failed to significantly impact the markets. This lack of market reaction underscores the understanding that these challenges are directly linked to the lockdowns and are expected under the circumstances.
The question arises: why are we confident in predicting a V-shaped economic recovery amidst this bleak news? Our confidence is rooted in the understanding that while some consumer spending and business investments have been lost permanently, many are merely delayed. For instance, events like the Summer Olympics or UEFA Euro 2020 have been postponed, not canceled. Once lockdown restrictions are lifted, delayed expenditures will contribute to the economic rebound. Evidence from places like South Korea shows that people quickly resume regular activities once restrictions are eased, indicating a temporary, not permanent, loss for the global economy.
Although the economic downturn will be sharp and painful, much of the expenditure is deferred, leading to a relatively short downturn with a rapid acceleration afterward. This perspective supports our belief that economic recovery could start towards the end of the year. While UK GDP might be negative for 2020, the decline might be in single digits, and 2021 could witness strong economic growth akin to the post-global financial crisis period.
Despite the expected short-term volatility in financial markets, it is crucial to maintain a long-term perspective. The storm will end, and focusing on the duration of the economic decline rather than its depth is key to navigating these turbulent times.
Looking ahead, important economic data, including Q1 GDP figures from the US and Eurozone, will be released. The Fed and ECB will conduct monetary policy meetings, and several FTSE-100 companies, including BP, Royal Dutch Shell, HSBC, Lloyds, Barclays, GlaxoSmithKline, AstraZeneca, Glencore, Reckitt Benckiser, and Next, will report their results. Encouraging signs from Asian markets, coupled with gradual easing of lockdowns in Europe, have sparked positive market sentiment at the beginning of this week. The FTSE-100 has started higher, indicating a potential upward trajectory in the markets.