March 2020 Newsletter

Themes from March

*Covid-19 has caused significant business disruption, closures and supply chain problems globally. Investor concern has focused on the rising death toll and indefinite nature of the virus impact.

*Social distancing, self-isolation and working at home practices have been encouraged by UK/ EU governments alongside shop closures as a means of reducing the transmission of Covid-19.

*Crude oil slumped over March after Saudi Arabia ramped up production despite reports suggesting Covid-19 has reduced oil demand by 20%. Russia has refused to lower oil production despite circumstances.

*Chancellor Rishi Sunak has introduced a ‘furlough’ for UK employees covering March to end May whereby employees receive up to £2,500 per month to stay at home.

*China March PMI, was reported at 52 indicating growth, was better than consensus estimates of 45 and significantly improved from 35.7 in February.

*US Senate passed a $2trn stimulus programme that will see every adult American receive $1,200 plus $500 for each child. The US Federal Reserve has reduced the Federal funds rate to between 0%-0.25%.

*Bank of England cut the Base rate from 0.75% to 0.1% and cancelled forthcoming bank stress tests.

*President Trump said the ban on travel to Europe would remain in place over April 2020.

Forthcoming UK Events



   Markit CIPS Manufacturing PMI



Nationwide House Prices



Markit UK Services PMI



UK New Car Sales/ UK Construction PMI



Halifax House Prices



UK Balance of Trade/ GDP 3 month/ Manufacturing Production



10YR/ 30YR Gilt Auction



UK Average Earnings / UK Unemployment Rate



UK Core Inflation Rate/ PPI Core Output/ Retail Price Index



UK Retail Sales/ Public Sector Net Borrowing





CBI Distributive Trades


CBI Business Optimism


Performance of World Markets (31/3/2020)

North America Value Change +/-(1M)% +/-(1YR)%
DOW JONES (Open)       22,162.41          -2,924.69           -11.66        -16.99
S&P 500 (Open)  2,609.15       -307.85   -10.55           -8.63
NASDAQ (Open) 7,743.22               -718.07     -8.49 0.18
Europe/UK Value Change +/-(1M)% +/-(1YR)%
UK 100 INDEX (14:30pm) 5,589.60   -992.01     -13.61     -30.23
EUROSTOXX 50 (14:30pm) 2,763.52             -559.03     -15.35      -21.01
Asia/Far East Value Change +/-(1M)% +/-(1YR)%
SHANGHAI COMPOSITE (Close) 2,750.30                -130.0         -4.37          -12.38
NIKKEI-225 (Close)        18,917.01              -2,225.90        -9.59           -12.02
HANG SENG (Close)        23,603.48             -2,526.45                -9.60          -23.08


 United Kingdom

PM Boris Johnson, Chancellor Rishi Sunak and the Bank of England have acted decisively to put in place emergency measures (£330bn funding programme) to stabilize the UK economy over the closure period which could last for a couple of months. The hit to GDP over 2020 could be -4% assuming a normal second half.

The sell-off in UK equities has been severe, the UK 100 briefly touched 4,993 on the 23rd March 2020 but the index looks past its worst point. Key to a sustained recovery will be the timing of UK/EU re-opening and the economy rebound in the aftermath of Covid-19.

However 2019/2020 dividends in many cases will be cancelled as board shift priorities to retaining cash/ corporate survival, and rightfully so. So far emergency funding lines appear sufficient for a period of very low revenues. It is conceivable that many companies will overdo ‘cash hoarding’ in the short term.

As UK corporate bond spread widen to reflect perceptions of corporate sector risk relative to government debt, this could prove quick to rebound once economies re-open.


The agreed delay to the Tokyo Olympics (23rd July- 8th August 2021) allows Japan to focus on export recovery and GDP growth post Covid-19 over the next 15 months. Investors had anticipated the delay and took the news in their stride. Japan has not been significantly impacted by Covid-19 in terms of numbers with only 1,953 cases.

The Japanese government is proposing a ¥60trn (US$556bn) stimulus package, slightly larger than the ¥56trn support launched in 2008. It will mainly comprise corporate lending (¥40trn) and ¥10trn of cuts to consumption taxes. The full package details of the package will arrive in early April.

The Nikkei-225 has started to bounce from depressed levels, having not quite touched 5 year lows. The Yen has been trading in a wide range, at times exhibiting its normal role as a safe haven currency, on other occasions giving up those gains.


EU leaders have also acted to stabilize the Eurozone suspending compliance with the budget deficit terms of the Stability pact. The European Commission has also approved the Solidarity Fund, a €1.2bn fund for small companies.

France is offering loan support worth up to €300bn to the corporate sector, an amount far in excess of likely requirements. Bruno Le Maire, French Finance Minister said he had received requests for €3.8bn so far. Germany has provided a €1.8bn loan to tour operator TUI AG.

Given negative interest rates, the ECB has limited firepower to fight the Covid-19 crisis. Under the leadership of Christine Lagard, the ECB has continued the Draghi approach of warning EU governments that it is national governments’ turn to achieve structural change.

Both Italy and Spain, the countries hardest hit by Covid-19 have been in lock-down mode. This is the most significant human tragedy since WW2 and will have profound implications for 2020. The Eurozone was limping into Covid-19 and is likely to see a recession in 2020. The move in EU stocks c. -28% is similar to other global benchmarks.


United States

US stock indices declines in 2020 have seen off the 2009-2019 US bull market and ushered in a new ‘bear’ phase of uncertain duration and disruption.

Whilst the US government, US Congress and Federal Reserve have made significant efforts, providing liquidity, stimulus, tax breaks and boosting confidence, President Trump has accepted the US government will likely end up with major equity positions in US companies. Leaving aside the US cruise companies who require a US domicile, companies ranging from oil, airlines, restaurants face this possible outcome. Even Delta Airlines, now on a P/E of 4x historic earnings is facing this possibility.

The US administration is aware that crude’s engineered collapse is intended to hurt US shale oil which explains President Trump’s willingness to intervene in the fruitless Russia- Saudi oil price war. The drop of WTI (West Texas Intermediate) to under $20/ barrel has jeopardized not just Texas and North Dakota shale operations but oil majors, offshore oil drillers, US oil service & equipment companies. The position of both Russia and Saudi Arabia appear self-defeating and unsustainable in that their economies are very reliant on oil & gas assets.


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