05 May 2020

Hello,

U.S. markets rounded off their best month since 1987, buoyed by the actions of policymakers around the globe. However, they fell sharply on Friday as a slew of ‘worst on record’ data releases (yes, that phrase again) began to weigh on investment sentiment.

Some investors are increasingly puzzled by the continuing disconnect between economic data and the performance of some risk assets, namely equities. The supportive nature of global central banks and other policymakers has been one of the chief architects of this divergence. This is a theme that has emerged in the global economy over recent business cycles.

We held our conviction to equity allocations throughout the recent declines and our current stance is to maintain our equity weightings. Our positive, structural view towards equities also remains. However, there may come a point when equities move to an ‘overbought’ position in the near future. If this occurs we may look to reduce our equity weighting on a short-term, tactical basis.

These points are covered in a discussion I recorded with David Warren, our Chief Investment Officer, on Thursday 30 April. You can access the podcast here.

As always, if you wish to discuss anything in this newsletter in further detail, please do get in touch.

Weekly Investment News

Equities saw mixed returns last week as U.S. markets fell on Friday (most European markets were closed on Friday 1st May, rather than yesterday like Ireland). Oil posted some gains, helped by evidence that crude consumption was recovering in some countries. On the political front, U.S.-China tensions are fully back in the picture as the U.S. suggested last week that the COVID virus had originated in a Wuhan laboratory, a view it reiterated over the weekend.

The stark economic reality of the virus continued to be evident in GDP growth data. Figures released last week show the eurozone economy contracted 3.8% (quarter-on-quarter) in Q1 as U.S. GDP for the same period came in at an annualised rate of -4.7%. Consumer spending and initial jobless claims releases continued the negative data trend. Given the lockdown only really took hold globally in March, Q2 figures are also expected to be extremely weak.

At the ECB meeting last week the size of asset purchases was kept unchanged but the terms on existing liquidity operations for banks were made more generous and a new liquidity operation with eased conditions was introduced. The moves came as ratings agency Fitch downgraded Italian sovereign debt to BBB-. In the U.S., the Fed is finalising more corporate lending programmes which should help to shore up credit markets further.

News on the virus was positive as there is increasing evidence that the inflection point of infection rates has been reached. More funding and encouraging initial trial results also emerged from various sources in relation to both a vaccine and treatments. Governments around the world, including here in Ireland, also began to release clearer plans to ease restrictions over the coming weeks and months.

For full details of last weeks’ market movements and economic news, click below:

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