View this email in your browser
Sign Up Here for Free to the DMU
Email me to provide feedback
Contents
Click on the links below to get to the stuff you really really want.
USA – Leading authorities paint a bleak picture; Stock prices and bond yields down; Pressure on banks
UK – UK in recession; Stocks down with oil and travel leading falls; Gilt yields heading towards record lows
Continental Europe – Economies reopening but sentiment negative; Manufacturers down
Elsewhere – Much the same
WTF – Cutting your own hair
Links
Numbers
Ts & Cs
USA
Get this. A person worth taking seriously stepped up and said something about the pandemic situation. Jerome Powell, the chairman of the Federal Reserve (equivalent to the Bank of England), noted during a speech to an economics institute that the Covid-19 pandemic was a crisis “without modern precedent” (some naughty cynics might suggest that he meant “president”). He drew attention to the plight of lower-income households and smaller businesses that would devastated by the lockdown.
The National Institute of Allergy and Infectious Diseases director, the much respected Dr. Anthony Fauci, was similarly downbeat in his warning that it would take a while for an effective vaccine to be found, mass-produced, distributed and administered. He added that the US could face more “suffering and death” if lockdown restrictions were to be eased too quickly.
That didn’t so much set as reinforce the tone that has dominated as this week has progressed. The sombre tone appears finally to be pulling stock prices down more in line with the economic data that have been coming in. The latest round of which included falling prices of goods as they leave factories.
So down went stock prices yesterday with the S&P 500 closed 1.7% lower. Tech stocks had a less bad time of it as they haven’t suffered so much while people sit at home using the internet.
The Saudis have reduced supplies of oil to the US and Asia, but oil everyone is concerned about how the recovery will develop, so oil prices have remained at around $25. The consequence for oil companies is that they’re producing less but not seeing a price rise, so profits are remaining very small, if they’re even there.
All this pushed people to buy lower-risk rated stuff, notably Treasuries (US government bonds). The benchmark 10-year Treasury price rose sending its yield down (the price and yield of a bond always move in opposite directions). Lower yields are bad news for banks because they act as a benchmark agains which banks can set interest rates on loans. With Treasury yields being so incredibly low, there isn’t much room for banks to make profits on loans. So bank stocks were pushed down by this pricing pressure.
Back to Contents
UK
The outlook for the UK economy is pretty bad. The latest data show a fall in the economy of 2.0% (as measured by gross domestic product) over the three months to the end of March 2020. The pain only began to take hold in March, so more falls are to be expected for the second quarter of the year. Other dire data included falling industrial and manufacturing output.
As well as dousing sentiment with a few gallons of misery, this also sent the value of the pound down for two reasons. Firstly, the outlook for UK output and investments looks pretty bad, so there’s less demand to buy into that stuff and, therefore, less demand for pounds sterling. Secondly, folk have been putting money into perceived “havens” such as dollars and yen, so their values have gone up relative to the pound.
A lower value to the pound helped to reduce the falls of stock prices on the export-dominated FTSE 100, but the blue-chip index still dropped by 1.5% yesterday. Oil companies led the declines with travel and leisure companies also suffering as the recovery doesn’t seem quite as easy to reach as we might have been hoping.
The FTSE 250 is more domestically focused, so the falling value of the pound had less benefit for its companies; it closed 1.8% lower on the day.
Unsurprisingly, the demand for and prices of lower-risk rated bonds have risen as folk look for places to put money that are less subject to general market falls. That has sent the yield on the benchmark 10-year Gilt (gov’t bond) down below 0.19%, ever closer to its lowest yield on record, which was March’s 0.159%.
Back to Contents
Continental Europe
The reopening of economies continued on the continent while investor sentiment remained pretty negative. The low oil prices, dour outlook from leading lights in the US, and acme-insta-recession in the UK all put the mockers on the outlook for investors.
The geographically broad Euro Stoxx 50 and the German DAX both dropped by 2.6% on the day. Defensive stocks (ones that don’t follow general market moves up or down as much as others) did less badly as one would expect: the utilities sector of the Euro Stoxx 50 dropped by 1.3%. But oil & gas companies were suffering as their output dropped while prices remain painfully low. Car manufacturers and other manufacturing exporters had a really tough time with Daimler, VW and BASF all posting substantial share price drops.
The one good-ish bit of news was the falling rate of infections in Germany. It had been rising again after the lockdown measures had been re-introduced which was unnerving folk all over the place. So this number will be watched carefully as a kind of case study for others.
Back to Contents
Elsewhere
It was all much of the same tone across the Asia Pacific region this morning. Australian unemployment has shot up sending the value of the Australian dollar down relative to other currencies. Benchmark indices are down by between 2.0% in India and 0.8% in South Korea.
Back to Contents
WTF (What’s The Fact?)
Cutting your own hair
Some folk are taking the opportunity of the lockdown to experiment with retro hairstyles.
Back to Contents
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.
Back to Contents
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.
