The Weekly Note: 31 March 2020

31 March 2020

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Market news

US and European equity markets have rallied this week, despite the prospect of lockdowns being extended in the fight against Covid-19. The UK has been told that life might not return to normal for another six months, but strong gains in the US overnight have encouraged the FTSE 100 higher today. US stocks are continuing their rebound of last week; after steep falls earlier this month, the Dow Jones enjoyed its best week since 1938 and the S&P 500 rose 10.28%. 

Optimism today is focused around the possibility of a fourth round of US stimulus, to follow the $2tn rescue package that was signed into law last Friday. There has also been a remarkable rebound in business activity data in China. Purchasing managers' index (PMI) readings for the country's manufacturing and services sectors registered 52 and 52.3 in March, well ahead of expectations and far from February's record lows of 35.7 and 28.9. Analysts have cautioned that the data could be overstated. 

The upwards swing in equity markets also goes against the extended collapse in oil prices, which fell around 9.5% yesterday to their lowest levels since 2002. Significant concerns about global demand and the price war between Saudi Arabia and Russia, which is flooding the markets with extra supply, pushed Brent crude below $23 yesterday. 

UK consumer confidence has been eroded to its weakest state since 2013, according to an index put together by YouGov and the Centre for Economics and Business Research. It measured the largest monthly fall since the Brexit referendum as households expressed fears about economic growth, unemployment and business collapses. 

After rallying from historic lows, sterling fell for the first time in a week yesterday after Fitch downgraded the UK's credit rating to AA- following the government's huge coronavirus spending package. Meanwhile, the European Central Bank announced that, unlike previous schemes, some restrictions on bond purchases will be lifted to enable it to focus support on countries like Italy and Greece. 

Stock focus

Easyjet has announced that it will ground its entire fleet and admitted that it wasn't sure when it would have planes in the air again. This comes as the UK government embarks on a £75m repatriation effort to rescue up to 300k Brits stranded abroad. British Airways has announced that it will suspend all flights from Gatwick, but continue operations at Heathrow. 

Smiths Group, the FTSE 100 engineering group, has announced that it has shelved its plans to spin off its medical business due the coronavirus crisis. It has also suspended its interim dividend and withdrawn guidance for the year. 

Imperial Brands, on the other hand, has said that it has not noticed any impact from the global pandemic and that current trading remains in line with previous expectations. The cigarette group's shares are over 12% higher at time of writing, with it also adding that it has secured €3.5bn of credit from a consortium of banks. 

Hammerson, the owner of some of the UK's biggest shopping centres, has been forced to scrap its final dividend after retailers paid only 37% of their quarterly rent. The landlord said it was judging the requests for deferrals and waivers on a case-by-case basis. Its shares are trading at an 88% discount to the company's reported net asset value in February. 

UK banks are under pressure to cancel their dividend packages in order to build up their capital so that they can support lending to households and businesses, in order to aid the recovery from the current crisis. It is thought the regulator could step in to enforce it. Last Friday, Flutter Entertainment and Domino's Pizza added themselves to the growing list of companies that have suspended dividends.

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