1st June 2020

Stock markets had another good week to round off an extremely positive month. We’ve now seen gains of over 34% for global stock markets since the lows in March on the back of huge stimulus measures and, more latterly, improving hopes about the economic reopening in developed countries. After a quiet week from a data perspective, this one hots up, with US jobs data out on Friday (where the unemployment rate is expected to come in at 19.6%) and the European Central Bank meeting on Thursday which will be watched to see whether it increases its QE Pandemic Emergency Purchase Program from €750bn to €1trn.

Last Week

  • Stock markets rose strongly with “value” parts of the market leading the way.
  • Gold took a breather but still remains a star performer year-to-date.
  • Sovereign bonds were flat but credit markets performed well.
  • Economic data was bad, but better-than-expected.
  • Europe and Japan announced further stimulus.

This Week

  • The main focus will likely remain on continuing evidence that the number of new Covid-19 cases is slowing in developed countries along with progress reports on the reopening of economies.
  • The monthly US jobs data on Friday will be keenly watched. The unemployment rate is expected to come in at 19.6% which would be the highest level since the Great Depression of the 1930s.
  • The European Central Bank meet on Thursday, where it is widely expected that they will increase the size of their Pandemic Emergency Purchase Program: the key question will be “by how much”.
  • Key business survey data (Purchasing Managers’ Index: “PMI”) is released tomorrow and Wednesday: an improvement from deep contractionary levels is expected.

Last Week’s Highlights​

Stock markets had another good week to round off a very positive month. Global markets rose by 2.5% on the week (in sterling terms) to take monthly gains to 7.2% and quarterly gains to 17.2%. They have now clawed back a lot of the losses from the sell-off in late February and March, with global stock markets down by “just” 0.9% now for the year in sterling terms (with a lot of thanks to weak performance of the pound) and just 10% below the highs they reached in February. Japanese markets were the strongest region last week; rising by over 7% thanks to a fresh stimulus package. This put Japan in top spot for the month of May, with the market up over 8%.

UK stocks performed well last week (with the FTSE All-Share Index being up 1.9%), but the larger names in the index were hampered a bit by the strength in the pound. The pound rose by over 1.4% on the week vs the US dollar, which hindered returns in the FTSE 100 Index to 1.4%. The more domestically focussed FTSE 250 Index was where the best gains were to be had, rising by 3.9% on the week.

From a sector perspective we saw a change in leadership. Value shares outperformed growth shares (by about 2%) and smaller companies outperformed larger companies (by about 1%). Digging deeper, it was the financials sector and notably the banks that posted the best returns on the week (banks were up nearly 10%), with industrials and utilities also doing well.

Gold continued to take a bit of a breather, with the market being in “risk-on” mode. Bullion was down 1.5% on the week, but remains up over 22% for the year. The gold price has held steady above $1700/oz for pretty much the whole of May, which remains its highest level since the back-end of 2012.

Government bonds were pretty flat last week and have been that way for most of the month; gilts finished May up just 0.04%, whilst US Treasuries were down by 0.25% on the month. Sterling credit was one of the best performing areas of the bond markets last week, up by over 1%, with high yield bonds also picking up strongly; up over 1.5% which takes gains for the month to 5%. It is emerging market debt however which remains the strongest performing part of the bond markets in May, with local currency debt up by over 10% and hard currency debt up by nearly 7%.

Economic data last week was bad, but broadly better than expected. In the US (where the labour market is more fluid and hence more instructive for sentiment), continuing claims for unemployment benefits unexpectedly fell by four million (but remain at over 21 million). “Only” two million new Americans filed for unemployment benefits which was less than the previous week and gave the market confidence that America was hiring as it began to re-open.

In Europe, the European Commission (EC) unveiled a €750bn pandemic recovery plan. The EC would borrow from the market and distribute two-thirds of the funds in grants and the rest in loans, meeting some of the objections of Austria, Sweden, Denmark, and the Netherlands. Spain and Italy would be the main beneficiaries, which saw their stock markets gain by 6.7% and 5.8% on the week respectively. This is a move towards “euro-bonds”, but one must note that this still needs to be agreed by all EU countries.

In Japan, there was a second round of stimulus announced of approximately $1.1trn (roughly doubling the same as the first round). This now takes the total amount of fiscal stimulus in Japan to an eye watering 40% of annual GDP.

Asset Returns

Equities & Oil: returns are all in base currency, save for Global and Emerging which are in GBP. Bond returns are all shown in GBP. Gold in GBP. Source: Bloomberg.

Global stock markets had another good week and have now risen by over 34% from their lows in March but remain over 10% below the highs reached in February.

Source: Bloomberg

Rory McPherson
Head of Investment Strategy