Market Commentary: Week to 19 May 2020

19 May 2020

Market Commentary: Week to 19 May 2020

 

Market News

Once again, the markets themselves were making the news, going on a roller-coaster journey from 2,940 (6,000 on the FTSE 100) down nearly 6% to 2,770 (5,670 on the FTSE 100) and back up by 7% to their current levels (see table below). Federal Reserve Chairman Jerome Powell seems to have been the main culprit both times, with his forthright assessment of the US economy (“40% of those in households making less than $40,000 a year had lost a job in March”) sending the markets into a tailspin, and a rare television interview five days later resurrecting them (“we’re not out of ammunition by a long shot”). Markets were aided on the way back up by the (inevitable) pumping of a potential coronavirus vaccine. 

In the UK, residents struggled to interpret the government’s looser criteria for lockdown, at the same time as trying to maintain social distancing. Brexit negotiations turned ugly and, with the Governor of the Bank of England raising the prospect of negative rates, the pound went on its own roller-coaster. The housing market remained in hibernation in April as the monthly survey of new buyer enquiries balance declined to -93 in April, from -76 in March, while the new sale instructions balance dropped to -96, from -70; both were new record lows. In economic data, the number of people claiming unemployment benefit jumped by 857K between March 12 and April 9, the biggest month-to-month increase since records begin in 1971. This number excludes those who have been furloughed by their employers. 

The leaders of France and Germany announced in a joint video press conference that they are backing the creation of an EU bond to raise €500 billion to boost the European economy. The two leaders said that work is still needed "to bring together all the member states". In economic news, new car registrations in the EU 27 crashed by 76.3% year-over-year in April, extending the slide from a 55.1% slide in March. Real GDP in Germany fell by 2.2% quarter-on-quarter in Q1, after a revised 0.1% fall in Q4 2019, in line with expectations.

In the US, the anticipated second wave of virus cases following the broad reopening of the economy failed to materialise though, ominously, the reduction in case number growth is slowing. Mobile phone location data suggested that demonstrators at anti-lockdown protests – some of which have been connected with Covid-19 cases – are often travelling hundreds of miles to events, returning to all parts of their states, and even crossing into neighbouring ones. The patchwork nature of the US lockdown was illustrated when the Wisconsin Supreme Court struck down the Governor’s coronavirus stay-at-home order. Meanwhile in Washington DC, another inspector general was fired by the Trump administration, ostensibly for raising compliance concerns about the conduct of the Secretary of State. 

The city of Jilin in northeast China, near the borders with North Korea and Russia, raised its coronavirus risk alert from medium to high. Shopping malls, cinemas, gyms, internet cafes ordered shut from Monday amid concerns of a second wave of infections. China's two-tier post-lockdown economic revival continued in April. Industrial production beat expectations easily, rising by 3.9% year-over-year, aided by the reopening of motor manufacturing industry in Wuhan. By contrast, the year-over- year contraction in retail sales values merely moderated, to -7.5% from -15.8%. Sectors depending primarily on household spending, such as cloth and mobile phone manufacturing, weakened in April, reflecting the uneven recovery of consumption. 

 

Stock focus 

Moderna Inc. an American biotechnology company based in Massachusetts released some early data which showed positive developments for a Covid-19 vaccine being developed. In a Phase 1 trial, the vaccine appears to generate an immune response similar to the response seen in people who have been infected by the virus and recovered. 

JC Penney (JCP), the American department store chain, filed for bankruptcy under chapter 11 of the United States Bankruptcy Code. They will be closing nearly 30% of their 846 stores across the United States as part of the restructuring. It has been reported that Amazon is in talks with JCP to buy either all or parts of the business. Possibilities include Amazon converting JCP units to its own high-tech retail format. 

Taiwan Semiconductor, a major supplier to Apple and Qualcomm, has confirmed plans to build a $12bn chip factory in Arizona. The plant will produce the most sophisticated 5-nanometer chips that can be used in high-end defence and communications devices, and should create over 1,600 jobs. 

Social media platform TikTok announced that Kevin Mayer, Disney’s head of streaming, will become its new CEO as well as chief operating officer of ByteDance, the Chinese company that owns TikTok. Mayer was considered to be a prime candidate to replace former Disney CEO Bob Iger, but the position went to Bob Chapek. 

The UK government backed top scientists at the University of Oxford and Imperial College London with new funding of £84m. The funding comes as The University of Oxford agrees a global licensing agreement with AstraZeneca for the commercialisation and manufacturing of their potential vaccine. AstraZeneca, the UK-based pharmaceutical company, will work to make up to 30m doses available by September for people in the UK, should the vaccine developed by Oxford University prove to be successful. 

 

Important information

This publication is intended to be Walker Crips Investment Management’s own commentary on markets. It is not investment research and should not be construed as an offer or solicitation to buy, sell or trade in any of the investments, sectors or asset classes mentioned. The value of any investment and the income arising from it is not guaranteed and can fall as well as rise, so that you may not get back the amount you originally invested. Past performance is not a reliable indicator of future results. Movements in exchange rates can have an adverse effect on the value, price or income of any non-sterling denominated investment. Nothing in this document constitutes advice to undertake a transaction, and if you require professional advice you should contact your financial adviser or your usual contact at Walker Crips. Walker Crips Investment Management Limited is authorised and regulated by the Financial Conduct Authority and is a member of the London Stock Exchange. Registered office: Old Change House, 128 Queen Victoria Street, London, EC4V 4BJ. Registered in England number 4774117.

Market Commentary: Week to 19 May 2020

Important note

No news or research content is a recommendation to deal. It is important to remember that the value of investments and the income from them can go down as well as up, so you could get back less than you invest. If you have any doubts about the suitability of any investment for your circumstances, you should contact your financial advisor.

Investors should be aware that past performance is not a reliable indicator of future results and that the price of shares and other investments, may fall as well as rise and the amount realised may be less than the original sum invested.


Walker Crips Group plc (Old Change House, 128 Queen Victoria Street, London EC4V 4BJ), registered in England, registered number 1432059, incorporates the following companies which are authorised and regulated by the Financial Conduct Authority: Walker Crips Investment Management Limited registered in England number 4774117 member of the London Stock Exchange, Walker Crips Wealth Management Limited registered in England number 3790291, Ebor Trustees Limited registered in England number 3514268, Barker Poland Asset Management LLP registered in England and Wales number OC341149.