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USA – Retail sales and industrial output slump; Stock prices and bond yields fall
UK – Virus “probably reaching peak”; Stocks slump on bad news; Bond yields nudge down
Continental Europe – Greeks and Germans issue bonds; German bonds in favour; Italian finances looking precarious
Elsewhere – Growth will stop this year; Australian unemployment jumps
WTF – Pristine chapel
Links
Numbers
Ts & Cs
USA
Investors could ignore the data no longer yesterday. The recent uplift in stock prices and bond yields was based on hopes that the virus cases and lockdown could be eased soon. The 8.7% fall in retail sales and 6.3% drop in industrial output punctured those hopes. After several days of bond yield and stock price rises, the sentiment on Wall Street finally turned negative.
The S&P 500 closed 2.2% lower on the day with the energy sector leading falls. It was giving up some of the gains that followed news of a detente between Saudi Arabia and its oil-producing counterparts elsewhere in the world. It would appear that agreeing a deal is easy, delivering it, not so much.
As stock prices were falling, the demand for and prices of bonds were rising, much as you would expect: people moving money from higher-risk into lower-risk rated investments. As we know and love, when the price of a bond rises, its yield falls which is why the yield on the benchmark 10-year Treasury (US government bond) dropped from around 0.75% to below 0.65% on the day. To put this into context, the yield was trading at 2.5% last summer.
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UK
The increased likelihood of the lockdown being extended in the UK gave investors pause for thought. The country’s Chief Medical Officer, Chris Whitty, said that the virus is “probably reaching its peak overall“, adding that “we’re not yet at the point where we can say confidently and safely it’s past the peak”. More shutdown means more safety but more economic pain. So down went sterling, stocks and bond yields.
The FTSE 100 and FTSE 250 dropped by 3.3% and 4.6% respectively. Every sector in both indices were down, with oil & gas posting the biggest losses. The falling value of the pound reflected the slump in short-term optimism for the UK economy, but it did help to reduce overall losses on the export-focused FTSE 100. The day’s biggest yoyos included easyjet and Cineworld, those travel and leisure companies continue to be battered.
The demand for bonds wasn’t up by much, but it did rise sending prices up and yields down. The yield on the benchmark 10-year Gilt (UK government bond) nudged down through the day to around 0.30% after a sharp fall on Tuesday when the bad news started to hit home and folk poured money into bonds.
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Continental Europe
The Greek and German governments were able to issue (sell) bonds at astonishingly low interest rates this week. They’re going to need that money to deliver on the various financial needs of households and businesses over the coming months. The debt created from this support will loom over future governments for years.
In the meantime, the yields of lower-risk rated bonds slumped because demand for and prices of them jumped once again yesterday. The reality of the lockdown, the death toll and the financial hangover are hitting home. The yield on the benchmark 10-year Bund (German government bond) is trading at around -0.44% at the moment. That’s much healthier (less unhealthy?) than the -0.86% it plummeted to in early March as the ramifications of the virus were first being digested. But the yield is still in negative territory, reflecting a demand for relatively low-risk investments in a dodgy world.
By contrast, Italian government bonds are much higher risk. They don’t have the balanced budget and export might of the German economy behind them. As a result, investors worry that the Italian government might not be able to make the interest and repayment obligations. Now that the latest round of financial support from the European Central Bank has been absorbed, Italian bonds look vulnerable. That’s unnerved investors who have sold them in large volumes sending the yields on the 10-year Italian government bonds back up towards 2.0% from their recent low of around 1.5%. Higher yield means higher risk.
Stocks were heading down as well in much the same way as everywhere else. Energy stocks led the declines, with the Euro Stoxx 50 and German DAX closing the day almost 4.0% down. The Italian FTSE MIB was heading downwards at a faster pace. It dropped by nearly 5.0% on the day, such is the level of concern over the country’s economy and financial status.
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Elsewhere
Here’s a nice though from the International Monetary Fund to brighten your day: Economic growth in Asia will halt for the first time in 60 years due to the “unprecedented” implications of Covid-19. Japan and Australia caught wind of this; their benchmark stock indices dropped by 1.2% and 0.9% respectively this morning. Australia’s drop might have had more to do with the latest unemployment numbers which jumped sharply with more set to come. Over in Japan, folk appear to be disappointed with the government’s financial response. According to a Reuters poll it is largely seen as too little too late.
Elsewhere, folk had already worked out that economic growth was going to stop, so it wasn’t really news. Stocks in China, Taiwan and even India (which has had some very turbulent days lately) were nudging upwards this morning.
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WTF (What’s The Fact?)
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Pristine chapel
Courtesy of the Ministry of Culture and Information Policy of Ukraine.
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Links
Investopedia – Loads of free explanations of financial terms including some helpful videos. Not 100% accurate, but a good starting point
Guffipedia – Lucy Kellaway of the FT has collected some painful examples of corporate people disappearing up their own analogies
Guardian – Free to access website with a couple of decent columnists (e.g. Nils Pratley and Larry Elliott)
Times of India – Why use five words when 37 will do?
Daily Mail – Click it. I dare you.
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IMPORTANT
This is my opinion. Yes I read a lot and share what I’ve read with you, but this content remains my
opinion. It’s NOT advice. If you take my advice – don’t take my advice. Any decisions you make about investments, your hairstyle or whether or not to eat marzipan are entirely at your own behest. If you are too stupid to recognise the devil’s ear wax when you see it, then you’re on your own.
