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Contents
Click on the links below to get to the stuff you really really want.
USA – Lifting of some global restrictions boosts sentiment; Oil prices slump on lack of available storage; Bond yields rise benefiting banks
UK – Stocks up; Bojo being sensibly cautious; Boring bonds
Continental Europe – Italy soon to start lifting lockdown restrictions; Italy retains existing credit rating; German minister advocates state aid
Elsewhere – Mixed start for Asia Pacific stocks
WTF – Insider info
Links
Numbers
Ts & Cs
USA
Italy, France, Germany and Spain are all talking about starting to lift their lockdown restrictions from early May. New York Governor Andrew Cuomo started to outline the state’s gradual lifting of restriction as well. Investors saw this as reason to be positive, so up went stock prices across the world. In the US, the S&P 500 closed 1.5% higher yesterday. This was despite another slump in oil prices caused in large part by oil storage depots largely being full the world over.
On a more positive note, Tesla was one of the companies talking about reopening its manufacturing plants, which gave it a further boost.
Meanwhile, as the appetite for higher-risk rated assets such as stocks rose, the demand for lower ones, such as bonds fell. The demand for and prices of benchmark 10-year Treasuries (US government bonds) dropped, sending the yields up modestly. That has a couple of beneficial effects for banks in particular. Firstly, it denotes that folk are less frightened of taking on risk (which is a necessary part of investing and borrowing). Secondly, it effectively pushed up the overall interest rates that people are prepared to pay to borrow.
In simple terms, when borrowing, companies can choose to go to a bank and take out a loan or they can issue a bond and pay interest (coupon payments) on that. If the yield on bonds goes up, banks can charge more to lend. Higher charges on loans is good news for banks which are currently looking at wafer thin profits on the loans they might make at the moment. So banks benefited from the rise in bond yields yesterday, sending their stock prices up. As a result, the financials sector of the S&P 500 added the biggest gain of 3.4% yesterday.
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UK
The world is working as one big stock market at the moment. So pretty much everything I’ve written about in the US section applies in the UK. The FTSE 100 and FTSE 250 closed 1.6% and 1.7% up respectively. Most sectors closed higher with the more cyclical stuff (i.e. industries that are more affected by general market confidence, such as industrials and financials) leading the gains as folk clasped onto whatever hope they could that things would get better sooner rather than later.
Meanwhile, several people reported that a muppet-like clown had been seen around Westminster making some sort of protest against grooming and hygiene or something. It turned out to be the prime minister; Bojo is back. And, unlike his blonde counterpart in the US, making some sense. He was warning that the UK was at “maximum risk” and that the country had to remain locked down while instigating a measured lifting of restrictions when the time is right to prevent a second spike. Someone’s been listening to their medical advisers.
The demand for and prices of bonds have become reassuringly dull during much of April. The yield on the benchmark 10-year Gilt (government bond) has largely traded at a little over 0.3% for the past four weeks. This suggests that folk have got a grip on themselves and are now waiting to see what happens when folk decide to lift restrictions, not least in Italy.
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Continental Europe
Italy is soon to allow factories and building sites to reopen. It imposed a lockdown seven weeks ago after being hammered by the virus. People flouted the lockdown, with a big movement from the infected north with its established health service infrastructure, to the south where their mamas make pasta, but there aren’t too many hospitals. Not clever. All eyes are on Italy and its contagion rate now.
The country did get something of a boost yesterday though. Rating agency Standard & Poor’s retained its existing rating for Italy. The agency could have downgraded Italy, leaving its debt rated as “sub-investment” or “junk”. That would have pushed Italy’s borrowing costs even higher than they already are, just as the country needs to issue loads more bonds to pay for its financial support package.
Meanwhile, folk were focusing on the potential positive effects on the economy of lifting lockdown restrictions. So, like everywhere else, despite oil prices falling, stocks went up to leave the Euro Stoxx 50 and Dow Jones Industrial Average 2.6% and 3.1% higher yesterday. Deutsche Bank and Bayer were noticeable climbers after they both reported better-than-expected results for the first quarter of 2020. Lufthansa also got a boost after a German minister commented that he was in favour of state aid. This is significant because it goes against the stringent financial conservatism of German financial culture. We’ll see if he can persuade others.
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Elsewhere
Stocks across the Asia Pacific region have had a mixed start to the day. They posted decent gains yesterday as folk latched onto talk of lockdowns being lifted. Today, the mood is more circumspect.
Japan is worthy of separate note though, after the Bank of Japan announced that it would provide more financial stimulus to help counter the financial effects of the lockdown. That lifted stocks on Monday, but the Nikkei 400 closed pretty much unchanged this morning.
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WTF (What’s The Fact?)
Insider info
I’ve managed to secure some photos from within Washington’s White House that show some of the resources that the administration is using.
The medicine cabinet:
The vitamin store:
The brains trust:
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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.
