Market news – 27 April 2020

Business sentiment surveys collapse to record lows

• Flash estimates show the eurozone composite PMI dropping to a new record low of just 13.5 in April (March: 29.7, consensus: 25.7), consistent with economic contraction of 7.5% this quarter. Services drove the majority if the decline, falling from 26.4 to 11.7 over the month, whilst manufacturing saw a smaller decline to 33.6 (March: 44.5). Weakness in activity across both sectors was reflected in the decline in employment as companies continue to furlough workers. Among the larger economies, the German composite fell from 31.0 to 17.1 over the month and France’s PMI fell from 26.0 to 11.2.
• The UK composite also collapsed to record lows in April as lockdown measures were extended. The composite fell to 12.9 (March: 36.0), services dropped to 12.3 (March: 34.5) and manufacturing dropped to 32.9 (March: 47.8). The services sector, which makes up c.80% of the UK economy, showed new orders, backlogs of work and employment all declining at record rates, with many hotels / restaurants / other consumer-facing businesses reporting a total halt in activity.
• UK retail sales fell by 5.2% over the month in March, in line with consensus. This was partially offset by a 10.4% rise in food store sales and a 31.4% rise in purchases of alcohol over the month. Clothing (-35%) and petrol stations (-19%) reported some of the largest declines. This compared favourably to other European countries, although April numbers will likely be worse given the lockdown was only implemented on 23rd March.
• Looking for signs of optimism, China’s SME Confidence Index rose for the second month in a row in April and the German ZEW Investor’s Expectations Index spiked in April on hopes of lockdown measures being lifted and companies reopening.

Remarkable price action in US crude oil price; generally, market tone remains constructive as some European countries prepare gradually to ease some lockdown measures

• Extraordinarily, US crude oil prices briefly dropped into negative territory (-$37.63 a barrel) for the first time in history this week as fears build that storage capacity could run out next month. The price collapsed as traders sold out of May future contracts in order to avoid having to take delivery of physically settled oil, thus incurring increasing storage costs as lockdown continues to suppress demand in much of the western world.
• Equity markets were briefly knocked back by the oil price volatility but recovered to end the week little changed; investment credit spreads also ended the week steady.
• Gold continues to rally as central banks globally undertake money creation at an unprecedented pace.