Futures markets are off to a flying start as Trump revealed his three step plan to getting back to work last night. Step one to “Opening up America Again” involves maintaining strict social distancing but opening up large venues, such as sports stadiums, along with restaurants. Phase two reintroduces non-essential travel and getting schools back up and running. Phase three is basically back to business as usual, but don’t go shaking hands or hugging too many strangers.
The document doesn’t put any firm timelines on this all, but the administration wants phase one to be in place in some states before the end of this month – though New York has said that lock down will stay in place until the 15th May and governors are still insistent they’ll work to their own timelines.
Another reason for the boost to stock markets was a report from pharma company Gilead that their Covid treatment drug called remdesivir is working pretty well and that patients admitted to the hospital in serious condition were, quite amazingly, able to leave in under a week. The next best thing to a vaccine is a highly effective therapeutic and this development, if confirmed by the full study results at the end of the month, could be fast-tracked into FDA and worldwide approval. One pleasant side effect of the news is that Gilead’s share price is 15% higher on the back of this news.
Stock markets have now recovered more than half of their losses and though there are certainly stocks within the indexes that are still priced accordingly (Boeing is still only worth a third of what it was before the crisis) there are plenty of stocks that are moving higher on the back of feel good factor and little else. What we’re seeing in China, where places have re-opened, is that consumer trends are vastly different once you’re out the other side of this – shopping malls, bars and restaurants still empty – and as the global economy is consumer driven we maintain the position that the optimism in markets might just be overcooked.
In Europe; car sales fell 52% in the month of March – with Italy down more than 80% and Germany -35% – It’s more relevant when you put that into context of cars sold and there were almost 900,000 fewer cars sold in the month – with an average car price of 30,000 Euros that’s 27 billion less turnover in just that sector alone. Germany’s dealerships are set to re-open next week and it would be tempting to think that with interest rates so low and inventories presumably quite high, automakers will be offering incredible deals to anyone willing to buy.
French President Emmanuel Macron has spoken to the FT and said what everyone else has been thinking; unless the European Union umm ‘Unifies’, then it’s risking undermining itself completely and failing as a political project. Mr Macron says they have no choice but to set up a fund that can issue debt with a common guarantee. “If we can’t do this today, I tell you the populists will win – today, tomorrow, the day after, In Italy, in Spain, perhaps in France and elsewhere… you cannot have a single market where some are sacrificed”.
There’s another conference call due next Thursday where we might see some movement on the idea and Germany and Holland might be coming around to the idea, but there was a need to act swiftly on this a month ago so we’re still not holding out much hope.
Just a couple of points on government bailout funds; The US fund for small businesses has run out of money; the $349bn war chest took less than two weeks to be emptied and now the additional $250bn that Trump has requested is being held up because Republicans and Democrats can’t agree.
In the UK Rishi Sunak is now looking at additional measures to help start-ups that aren’t yet profitable and therefore don’t qualify for the usual loans; the broad outline is to match private equity funding pound for pound and have the debt be convertible so that if the entity can’t repay the debt, the government gets an equity stake in the business. Knowing first hand how challenging it is to get venture funding at this exact moment in time I am very much looking forward to reading the details on this.
A great longer read for you to take into the weekends. I can’t really do it justice in the short paragraph that I’ve got so please do take the time on the full article if the subject matter interests you. Wall Street banks are looking get deeper into the oil business, by trying to get rules changed that would allow them to operate the oil drilling companies that they have financed and are likely to collapse. At the moment there are all kinds of regulations that stop banks operating these assets even at arm’s length, because of the conflicts of interest they’d have. However, with the amount of insolvencies they face as a result of oil priced where it is they want to get this changed. The risks to the banks seem asymmetric to the rewards – if a bank owned a rig that was responsible for an oil spill, the lawyers would go after everything the bank had, yet the upside to selling oil when the price is down here is incredibly limited – but still there is appetite.
Today we’re going to be guided by the equity markets and whether they can carry the optimism all the way to the closing bell. We’ll get to see European inflation numbers too, but we don’t expect them to have fallen off a cliff just yet.