6th – 12th April 2020
In a holiday-shortened week, equities recorded one of their best weekly gains on record, as some encouraging trends in global coronavirus infection and hospitalisation rates lifted hopes that stay-at-home orders might soon be eased.
The UK’s FTSE 100 Index surged 7.83%. The STOXX Europe 600 Index ended 6.62% higher. Germany’s DAX Index climbed more than 11%, France’s CAC 40 Index gained 7.62%, and Italy’s FTSE MIB was up around 5%.
The S&P 500’s return of more than 12% was the index’s biggest weekly gain in 45 years with energy shares and financial services shares regaining some lost ground, while consumer staples stocks lagged. The gains brought the large-cap indexes and the technology-heavy Nasdaq Composite Index within 20% of their February highs.
Stocks in Japan recovered nearly the entire prior week’s losses through the close on Thursday. The Nikkei 225 Stock Average advanced 1,526 points (8.5%) and closed at 19,345.77, down 18.2% for the year-to-date period. The large-cap TOPIX Index and the TOPIX Small Index also posted good gains for the week but have returned -17.7% and -22.0%, respectively, in 2020. The yen was modestly weaker for the week and traded in a range near ¥109 per U.S. dollar on Thursday.
Markets were closed for the Ching Ming holiday on Monday. Taking their cue from the rally in global markets on better coronavirus numbers, they opened higher on Tuesday. From the previous Friday to Thursday, the Shanghai Composite and CSI 300 large-cap index both rose by around 2.2%.
U.S. Treasury yields increased over the week, driven by the risk-on sentiment in equity markets and an increased supply of Treasuries with the yield on 10-year US Treasuries currently trading at 0.71% German Bunds 0.36% and UK Gilts 0.30%. Gold is currently trading at $1,690 an ounce, having risen 3.3% over the week. The US dollar weakened with the dollar index falling 1.3%. Sterling is trading at USD 1.25 and EUR 1.14.
Early in the week, there were conflicting reports about the likelihood of renewed cooperation between OPEC heavyweight Saudi Arabia and non-OPEC member Russia. Some media reports indicated that there was continued tension between the two countries following Russia’s early-March decision not to cooperate with proposed OPEC production cuts and Saudi Arabia’s retaliatory move to drive down prices via increased production and discounts to global customers. Other reports quoted a Russian official as saying he believes that a Saudi-Russia deal to cut global production was “very close.”
The likelihood of a deal seemed to increase around midweek, as Russia signalled a willingness to cut production. There were also reports in early Thursday trading in the U.S. that a Saudi-Russia deal was taking shape, and The Wall Street Journal reported shortly before markets closed in New York that the two nations had agreed to cut production by a combined total of 5.3 million barrels a day, nearly a quarter of their current combined output.
Corporate earnings will start to get revised this week and we are likely to see market movements that reflect the new reality. We are therefore continuing to advocate patience in dealing with this potentially open-ended uncertainty.
Long-term investors should find encouragement in the market’s progress – While the bear-market emerged almost overnight, recoveries typically take time. We think a rebound will take shape, and has the potential to be vigorous, but long-term investors shouldn’t feel the need to time the bottom.