Global equities erased most of the prior week's gains after a string of disappointing economic releases and escalating tensions between the U.S. and China weighed on markets. A speech by Federal Reserve Chair Jerome Powell, in which he said that the U.S. economy is “subject to significant downside risks” in the months ahead and warned of “lasting damage to the productive capacity of the economy” also impacted sentiment. The Fed held out the possibility of further stimulus measures and stated that it was not considering cutting interest rates below 0%.
Reports surfaced during the week that Senate Republicans were considering legislation imposing sanctions on China due to its alleged lack of cooperation early in the coronavirus crisis. President Trump also told Fox Business that he had no interest in resuming talks with Chinese President Xi Jinping and that the U.S. might “cut off the whole relationship” with China, adding to investor caution.
On the economic front, U.S. retail sales and industrial production registered their steepest declines on record for the month of April, reflecting the full and sudden stop of economic activity. The number of Americans seeking unemployment benefits remained in the millions for an eighth straight week, totalling 2.98 million. A total of 36.5 million applications for unemployment insurance have been filed since the coronavirus began shutting down businesses in mid-March.
Europe’s economy contracted by a record 3.8% in the first quarter compared with the final three months of 2019. Similarly, the UK contracted by 2.0%, its biggest drop since late 2008. The ECB responded, reiterating that it stands ready to do everything necessary to support the euro area during the coronavirus crisis. It is fully prepared to increase the size of its emergency bond purchases and to adjust their composition by as much as necessary and for as long as needed.
Meanwhile, China has contended that it didn’t know until Jan. 19 how infectious the new coronavirus is, attempting to push back against accusations that it intentionally withheld information about the severity of the outbreak. Chinese data during the week was mixed with industrial production rebounding strongly in April, ahead of expectations, whilst retail sales remained weak.
Global equities sold off during the week. In the U.S., the Dow Jones (-2.65%), S&P 500 (-2.26%) and Nasdaq (-1.17%) Indices were all softer. Similarly, European and Asian markets were weaker with the Euro Stoxx 50 (-4.73%), FTSE 100 (-2.29%), Nikkei 225 (-0.70%) and Shanghai Composite Index (-0.93%) all negative.
Brent crude oil ended the week up 6.35%, trading at $32.84 per barrel, driven by supply cuts by OPEC and data released on Friday showing that China’s daily crude oil usage rebounded in April as refineries ramped up operations.
Market Moves of the Week
Locally, South Africa’s government announced plans to further ease the nationwide lockdown as the economic fallout from closing much of the economy threatens to outweigh the damage caused by the coronavirus outbreak. The country will move to disease alert level 3 by the end of the month, from level 4, and allow additional industries to resume operations.
The JSE All Share Index ended the week down -2.70%, with all the major sectors under pressure. The financial sector was particularly weak, down -10.84% as banking shares sold off.
Chart of the Week
With a renewed focus on tensions between the U.S. and China, there is a risk of further bilateral disputes ahead, especially as the coronavirus pandemic and low energy prices may make it more difficult for China to meet the trade deal’s $200bn purchase agreement. As the chart of the week shows, Americans' views toward China have worsened significantly in recent years, with the percent holding an "unfavorable” view of China reaching an all-time high in the latest Gallup survey.
Whilst volatility is likely to continue amid current market uncertainty over the coronavirus disease, our message to all investors remains the same - stay calm in making decisions that are aligned with your long-term goals, not current market conditions. In any market environment, we strongly believe that investors should stay properly diversified across a variety of asset classes and that clients financial plan supports their long-term goals, time horizon and tolerance for risk.