Weekly Market Update


Equity markets, after a strong start to the week, gave up some ground as downbeat messages on the outlook from central banks and corporate earnings announcements weighed on sentiment.

A key feature of this corporate earnings season is companies refusing to give any guidance for earnings going forward, which leaves analysts in the dark as to how companies expect to perform in the coming quarters.

Away from markets, we are starting to see signs of governments either relaxing their current lockdown conditions or implying that a relaxation of the rules is not far away. In the US, Gilead Sciences, provided some relief to markets as it revealed that a drug called Remdesivir could help accelerate the recovery from the virus.

Inevitably, we are going to see some shocking economic data over the next few months. Last week the first reading of US GDP data for the first quarter of 2020 showed their economy shrank at a 4.8 per cent annualised rate, worse than expected.

The Eurozone economy also shrank by 3.8 per cent on the same metric. We also saw US unemployment benefit numbers rise once again to more than 30 million. The next few months and years will be about survival of the fittest and companies with high levels of debt are particularly vulnerable.

As the Covid-19 pandemic causes extensive disruption to economies and businesses, listed companies have been shelving their dividend payments to conserve cash. Dividend suspensions have been seen across a whole range of sectors, but the notable change last week came from Royal Dutch Shell.  The oil major reduced its quarterly payment for the first time since World War Two following the collapse in global oil demand due to the Covid-19 pandemic. This means that the fall in income levels over the next 12 months will potentially be far greater than was the case during the Global Financial Crisis.

Numerous trends that were in place before the Covid-19 crisis have now been accelerated. These include the migration of shopping and services online, resulting in a crisis on the traditional high street. Amazon has been a major beneficiary and its first-quarter results showed that sales in the quarter rose 26% year-on-year to $75.5 billion as consumers on lockdown turned to the group for deliveries of essentials.

However, earnings were lighter than expected as costs to adapt to changing consumer demands and workforce needs as the Coronavirus pandemic escalated.

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