Economic Update 4-13-2020
- Economic data included tempered produce and consumer inflation figures, and sharply negative results, as expected, for jobless claims, job openings, and consumer sentiment. Impact from coronavirus-related economic shutdowns have begun to filter into official economic data, which is likely to continue in coming months.
- On a shortened Good Friday week, global equity markets gained sharply as hopes for a flattening of new coronavirus infections boosted investor sentiment. Bonds were mixed, as interest rates ticked higher—helping corporate credit—while governments sold off. Commodities were mixed, with energy markets softer, while metals gained ground.
U.S. stocks continued to rebound last week (started off with a 7% gain Monday), realizing its strongest single week in decades. This was due to a deceleration in the new number of coronavirus cases appeared in key infection areas, including New York and parts of Europe. This naturally spurred optimism about a potential end to lockdowns. While it’s perhaps too early to call a peak, markets have been looking for any indication of some improvement and light at the end of the tunnel. By sector, cyclical materials and financials experienced the strongest gains, as did real estate, while more defensive consumer staples and health care earned far smaller gains.
Foreign stocks increased by a similar level, with developed markets falling a few percentage points short of domestic stocks, and emerging markets just below that. The French economy suffered an estimated -6% decline in Q1, with Germany close to -10%, while discussions were already underway in some European nations about re-opening non-essential businesses. There are also negotiations about a broader European rescue package, with hopes for Euro-issued ‘corona bonds’—however, debate exists about who would ultimately be on the hook for payment, similar to prior attempts to issue continent-wide debt. Emerging markets have lagged, due to still-present uncertainty about their ability to react to the spread of Covid beyond key developed markets on the medical or economic side. Additionally, volatility in commodities markets remains a key structural driver in these nations, which explains some relief in Brazil last week.
U.S. bonds were mixed, as treasuries lost ground along with investors again seeking risk, pushing interest rates higher, while both investment-grade and high yield corporates gained several percent as spreads continued to contract along with broader improvement in risk-taking. Foreign sovereign bonds were flattish, while emerging market debt improved along with general risk taking, which caused spreads to tighten.
Commodities were mixed for the week, as energy fell back again, while industrial and precious metals both gained. The price of crude oil bounced around in the mid-20’s during the week before setting at just under $23/barrel. Interventions by the U.S. led to agreements for OPEC+ production cuts, although there was pushback by Mexico in implementing the changes, and they’ve largely been seen as too little, too late to offset the sharp demand slowdown. This reflects the complexity of OPEC, in that each member has a different ‘breakeven’ oil price needed to meet government fiscal budget requirements, as well as game theory competition between members. This has been occurring for decades, and will continue to. In one sense, recent actions by the Saudis are the ironic reversal of the supply embargo of the early 1970s, where oil was withheld by the market. No doubt, the extreme push in supply would have been unthinkable at that time.
|Period ending 4/10/2020||1 Week (%)||YTD (%)|
|BBgBarc U.S. Aggregate||0.57||4.01|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
Sources: LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.
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