Weekly Market Insight

Daily Covid-19 Market Update 24th April 2020

24th April 2020

Friday’s Covid-19 Update: Graph of the week- Spread of Italian & German 10 Yr Govt. Bond yields | UK PMI shows historic drop | US unemployment continues to soar

The spread between Italian and German 10 Year Government Bond yields is considered a measure of risk for the Eurozone. In March during the downward spiral of markets, this spread rose to nearly 2.8%. A quick and substantial response with the bond purchasing programme from the ECB began to reduce risk which saw the spread narrow. However this has since increased again to nearly 2.6%. There has been strong debate between countries in the EU, about pooling funds on a fiscal level to combat the crisis together. However previously this has seen many objections, as some of the more stable countries didn’t want to provide funds that could be used to help weaker countries which would then become shared debt. A meeting was held yesterday to move forward with the possibility of a joint fiscal effort and to design a Recovery Fund. Despite Germany stating it would commit to substantial financial support, the lack of details such as where the funds would go and the form of these funds left the EU without an agreement.

The fragmentation in Europe has also been reflected in the Euribor rate, a measure of the interest rates in where banks in the euro area lend to each other. This has reached a four year high. Despite the rate not showing where the risk is coming from, it is worth noting that banks in southern countries (where the risk mainly lies; eg: Spain & Italy) make up 7 of the 18 reference banks that are used to set the rate. 

Source: BlackBee, Bloomberg,FT.com, April 2020

Latest Covid-19 Market Update
(as at close of markets 23/04/2020 unless otherwise stated)

The price of WTI continued its rally, reaching over $17 a barrel. Stocks were on track for a gain during Thursday’s trading despite fresh figures being released on unemployment data. However, on the back of news that the first vaccine trial was unsuccessful, markets moved into negative territory for the day. The news of the unsuccessful trial dimmed hopes that there would be a quick recovery.

The number of unemployed Americans rose to 26 million last week. 4.4 million jobless claims were filed in the past week. The number of claims has dropped for a second week in a row which indicates the US may be past the peak of layoffs. More funding has been agreed for the Paycheck Protection Programme to further slow the numbers in jobless claims. As of 11th April, the number approved for the claim reached the highest on record, 11% of the total workforce, according to the Financial Times.

Earlier in the week saw the European PMI drop to record lows. The UK PMI has followed suit showing the fastest drop on record, from 36 in March to 12.9 in April. The decline could be worse as the PMI excludes the majority of the self-employed and the retail sector. Figures released also show that approximately 21,000 business in the UK collapsed in March, a 70% increase from the previous year. Loss in business and the significant fall in the PMI with falling inflation levels in the UK, leaves hopes of a V shaped recovery very unrealistic. 

In response to pressure from the Bank of England, the chancellor of the UK is now considering guaranteeing loans of up to £25,000, for small businesses who are struggling to get loans due to credit ratings. In an attempt to prevent even more small businesses going bust, which would further increase the difficulty of recovering from the crisis, the scheme could be launched as early as next week.

Source: BlackBee, Financial Times, April 2020