We saw the dollar gain and stocks fall a little yesterday as month end rebalancing meant that normal sentiment driven moves were put on hold whilst asset managers window dressed their portfolios. Looking at the FTSE all world index, losses for the year are around 15% from where we started the financial year, but 25% down from the market peak in February. The index is now trading at roughly where we were in Q1 of 2017.
The move lower in stocks and higher in the dollar probably opens up another opportunity for the market to start the year as they hope to continue, in a buying mood. The news out of Europe seems to be that of very cautious optimism with cases in Italy having levelled off a little. Traders will be keen to buy into any optimism that they can get their hands on and even this news is enough. We should call out Bloomberg for their geography at this point, as they point out that ‘neighbouring Spain’ had their worst day yet – though sure France won’t be upset at not being included.
The ‘Fake News Media’ finally got through to Donald Trump and he’s now of the opinion that America are going to have a very tough couple of weeks ahead. He has added himself to the list of experts that are saying the death toll in the US could to be 100-240,000. The change in his opinion is obviously long overdue, but it might also mean that other leaders that aren‘t taking this too seriously being to; Brazil’s president Bolsonaro is still pedalling the line that the virus is a media trick and isn‘t worried about catching the virus because he used to be an athlete. Meanwhile regional leaders are sidestepping his inaction wherever possible and trying to implement necessary steps, but are finding themselves in the same position US state governors were a week or two ago, when requests were falling on deaf and denying ears. This piece from The Guardian is worth a read
The US are said to be looking at a fourth phase of their stimulus package that might include further extending sick leave payments, more direct payments and also infrastructure spending. We’ve said this for ages, that infrastructure spending when borrowing costs are as historically low as they have been for the last few years is a no-brainer. Amazing that it takes something like this for the US to finally consider it – and they should start with New York’s airports! – as with all things American and political, the expectation is that progress on this wave of funding will be a slow process and it could be weeks before anything further is announced. The LA Times has a good rundown of the US situation.
On the corporate bond story that we’ve been harping on about; the FT are reporting that one bond fund is asking for a waiver on its mandate to only hold certain amounts of junk bonds. The recent downgrades to some of its investment grade bond holdings would normally mean that the fund needs to sell those bonds and rebalance, but to do so in the market would be to risk a fire sale and have to sell at whatever price they can get. If it can get this permission from some of the funds investors then it may set a precedent that others can follow and avert another market crisis by everyone not having to follow the mandate and sell into a market with no buyers (that’s a big ‘if’ though).
Looking to today; the FTSE is set to open lower and this is on the back of the news that banks won’t be paying out any dividends and are likely to withhold cash bonuses from senior executives whilst this is ongoing. HSBC, Lloyds, RBS, Barclays and Standard Chartered were set to pay out more than £15bn in dividends which they’ll now retain – times in a low interest rate world can’t have been that tough for them! The move from the banks is in response to a strongly worded letter from the Bank of England suggesting that the should take this approach to retain as much cash as possible.
More from us tomorrow…