Weekly Digest - INVESTEC
Please find attached the Weekly Digest
Last week, risk markets had a positive tone, although they remain volatile with the VIX volatility index still at historically high levels. The 2% rise in world equities last week compounded the strong rally this month, which has seen global equities rally by 8% in sterling terms. This rebound has come alongside some hopeful signs that measures to control the spread of COVID-19 are having some success at limiting its spread to levels that can be managed by healthcare systems. The main cause, however, has been the actions taken by global central banks and governments over the past month to offset the economic impact of the associated restrictions, which have reinforced confidence in the economic structure.
Most importantly, global central banks, led by the Federal Reserve, have faced-down a cataclysmic challenge to their ability to provide liquidity – certainly comparable in magnitude to the Lehman Brothers “moment”. According to Deutsche Bank, the magnitude of the expansion of central bank balance sheets globally since the end of March ($2.7 trillion) already exceeds the expansion seen in the Global Financial Crisis (GFC). Combine that with the short time period over which this has occurred (in the GFC it took far longer) and the scale of the response can be even better appreciated.
The second prop for sentiment is the fiscal stimulus applied. Governments have moved to deliver fiscal stimulus programmes of a size and shape never before seen at close to 4% of GDP- twice the level of that in the aftermath of the GFC. These factors have enabled investors to “look past” the poor economic data (e.g. US jobless claims) and the inevitably cautious start to the earnings season.
The International Monetary Fund (IMF) has released its latest World Economic Forecasts, with global growth forecasted to be -3% this year (vs its previous forecast of +3.3%). The IMF is expecting a rebound to growth in 2021 and is forecasting global growth of 5.8% next year, up from its estimate of 3.4% in January.
The number of new infections continues to look as though it has peaked at just short of 90,000 infections per day on 11 April, although the series is fairly volatile and has not yet shown signs of trending down.
The total number of new infections continues to grow at c. 4% per day (roughly in line with last week’s number), with the US accounting for 39% of all new daily infections. The UK averaged 5,000 infections per day over the past week, down 5% from the week before. That said, there has been a notable jump in the number of countries with more than 500 new infections per day. The most concerning growth rates are for Brazil and Russia, where the number of infections per day has doubled and tripled respectively over the past week.
The Week Ahead
This week sees a number of corporate results announcements, with bellwethers such as Reckitt Benckiser, Danone, Coca Cola, IBM, SAP, Netflix and American Express among those scheduled to report along with names of particular interest to us such as Vivendi (today – decent results), Thermo Fisher Scientific, Roche and Unilever. In terms of economic data, this week sees the release of the latest UK employment and inflation data along with global PMI surveys for April. Thursday is the key day this week, with EU leaders holding a summit to discuss their fiscal stimulus plans. The issue of common debt (so-called ‘eurobonds’) remains controversial.