Weekly Market Insight

Latest Economic & Market Update 6th May 2020

06th May 2020

Latest Economic & Market Update
Good Afternoon, it is 6th May 2020 and here is your economic and market update from BlackBee
Today we are going to focus on:
> Investors believe demand has bottomed out.
> Mass cut in company guidance leaves investors guessing.
> Supplier costs increase in the automotive industry.
> Risk in Eurozone rises as Germany’s Constitutional Court target ECBs Public Sector Purchasing Programme.
 
The phased reopening of economies is helping markets to continue rallying from March lows. The tech-heavy NASDQ index is currently down -1.82% for the year. At its worst point in March, it was down -24% for the year. The same hopes that demand will increase as economies begin to reopen is also pushing oil prices higher. WTI climbed over 20% yesterday to reach $24.56 a barrel. Investors believe that demand has now bottomed out, however, the oil market is still vulnerable as inventories continue to reach capacity.

This rally continues despite the fact that investors have no guidance. Out of the 283 companies that have released earnings so far in this earnings season, only 103 have provided guidance while 53 companies have cut guidance, leaving investors guessing. Although this is to be expected due to the uncertainty around the crisis, it increases the difficulty for investors in forecasting the performance of companies for this year. It also reinforces the idea that the rally is influenced by hope as it is not supported by any data.

Volkswagen have stated that there has been a sharp rise in price for crucial car parts. This puts further pressure on profits for an industry which has already been severely hit by the crisis. Suppliers invest in large facilities required to meet the large quantity demanded, but with a sharp drop in demand, the problem of overheads has become a burden. Suppliers are operating at fractions of the capacity compared to before the crisis, which has seen them pass on the expenses such as overheads to manufacturers. As we are in a recession, and despite car manufacturers haemorrhaging cash, it is unlikely the rise in expenses will be passed on to consumers. Figures released for the UK show that car sales fell 97% in April and saw only 4,321 cars registered. This is in comparison to 161,064 cars registered during the same period last year and is the lowest level of car sales since 1946. With such a drop in demand, manufacturers are forced to soak up the increase in supply costs, as passing costs on to consumers would result in a further drop in demand.

Germany’s constitutional court has called on the ECB to justify its bond purchasing programme which threatens to stop any new purchases of German bonds through the ECB’s PSPP. The court has given the ECB a three month deadline to justify its programme and threatens to weaken the ECB’s monetary policy response. Germany argues that the PSPP violates the German Constitution as they claim the ECB has overstepped their mandate by illegally financing governments, which in turn exposes taxpayers to losses. Germany wants to ensure that economic and fiscal policy effects from the bond purchasing programme do not outweigh the ECB’s policy objectives. A long list of reasons why the ECB could have exceeded the mandate was presented in court, however, the court said it could not decide without more information. Investors are now worried that there will be political constraints on the ECB resulting in restrictions on new or expanded debt purchases. Italian bonds were sold off on the back of this as the spread between German and Italian yields (a risk measure in Europe) has increased to over 2.4%.

SURVEY- Attitudes towards Financial Advice

In part three of our research findings, we focus on people’s attitudes towards financial advice.

In a comprehensive survey of over 1,000 people conducted by B&A on behalf of BlackBee Investments, it was found that 86% would have to do a lot of research before considering investing, while risk appetite is low with almost three quarters are looking to avoid any type of risky investment and a preference for familiar institutions is also evident.

The survey also found that three in five adults would consider seeking financial advice in relation to their investment needs.  A substantial proportion consider investing in stocks and shares to be just for high earners and many believe you also need a stockbroker. 

You can find out more about the findings of this study by following this link.