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28th February 2020

28/02/2020

Market Data and Morning Chat

Morning Chat

From hero to zero: Six market sessions ago the US equities were touching all-time highs – that’s only last week.  Now six sessions later markets are, broadly, experiencing a correction – a peak to trough drop of more than 10%. Certainly the move is not to be belittled – it’s a big move – but it’s not unknown.  World War Two concluded 85 years ago and in that time there have been 27 corrections, or roughly about one every three years. This one’s been quick – possibly trade-deal euphoria kept markets buoyant more than they should have been – but it’s not an unusual market event.

How stern is a correction? Much depends on causation, but historically corrections – market declines of more than 10% – have averaged around 14% with about a third falling just over 10%, a third close to 14% and third by much more with the latter corresponding to big US recessions – post-Korean war, oil crisis mid-70’s, early 80’s – or the banking scares of the late-90’s and 2010-11.  The exception is December 2018.  Recessions take time to heal, but most declines recover within 4 months usually as the problem resolves. What will be telling in this case is the speed of the outbreak containment.

What’s it like this time? It’s too early for certainty. The concern is the international containment of the illness especially in Europe.  That said, it took 29 days to get to 75,000 cases in China, in the 10 days since we’ve only seen another 3,000 cases while the number deemed recovered is nearly half their total. Without belittling the human tragedies, there are reports the supply chain disruptions in China are improving, and Matt Shay, CEO of the US National Retail Federation reiterated this yesterday.  For the markets, it’s the extent of the economic disruption that is the critical issue.

Futures are look quite negative after last night’s US decline though US futures are moderating
National Express (+0.8% - yep +) drove home record annual revenues and profits…
… and a bus might be the only way to get to the UK as Heathrow’s third runway is again blocked
Insurer RSA (+0.6% - yep, also +) similarly posted record profits on underwriting gains
British American Tobacco (-1.8%) management likely ashen over fall in profit over vaping costs
WPP (-16.2%) chose the wrong day to advertise they only managed flat like-for-like sales

Market Data

Selected Global Aggregates (Total returns, unhedged)    
MSCI AC World Equities (Local) down -45.26 (-3.40%) at 1,286 (YTD: -6.47%; 5YR: 40.6%)
MSCI AC World Equities (USD) down -341.43 (-3.56%) at 9,239 (YTD: -7.42%; 5YR: 39.2%)
Barclays Global Aggregate Bonds up +1.55 (+0.30%) at 518 (YTD: 1.31%; 5YR: 14.6%)
    
Selected Equity Indices (Capital returns)    
S&P 500 down -137.63 (-4.42%) at 2,979 (YTD: -7.80%; 5YR: 41.5%)    
NASDAQ down -414.30 (-4.61%) at 8,566 (YTD: -4.53%; 5YR: 72.6%)    
Euro STOXX 50 down -121.76 (-3.40%) at 3,456 (YTD: -7.72%; 5YR: -4.0%)    
FTSE 100 down -246.07 (-3.49%) at 6,796 (YTD: -9.89%; 5YR: -2.2%)    
CAC down -188.95 (-3.32%) at 5,496 (YTD: -8.07%; 5YR: 11.0%)    
DAX down -407.42 (-3.19%) at 12,367 (YTD: -6.65%; 5YR: 8.5%)    
Nikkei 225  down -805.27 (-3.67%) at 21,143 (YTD: -10.63%; 5YR: 12.5%)    
Hang Seng down -697.27 (-2.60%) at 26,081 (YTD: -7.48%; 5YR: 5.1%)    
MSCI Emerging Markets down -12.64 (-1.21%) at 1,031 (YTD: -7.54%; 5YR: 4.1%)    
    
Selected Government Bond Yields    
US 2 Year down -0.05 at 1.01 (began the year at 1.57; 5 years ago it was 0.62)    
US 10 Year down -0.05 at 1.21 (began the year at 1.92; 5 years ago it was 1.99)    
UK 10 Year down -0.03 at 0.47 (began the year at 0.82; 5 years ago it was 1.80)    
Germany 10 Year down -0.04 at -0.58 (began the year at -0.19; 5 years ago it was 0.33)
France 10 Year down -0.02 at -0.27 (began the year at 0.12; 5 years ago it was 0.60)    
Italy 10 Year up +0.11 at 1.18 (began the year at 1.41; 5 years ago it was 1.33)    
Japan 10 Year down -0.05 at -0.16 (began the year at -0.02; 5 years ago it was 0.33)    
Barclays EM Basket up +0.02 at 3.92 (began the year at 4.27; 5 years ago it was 5.09)
    
Selected Currencies    
$ weakened -0.0020 versus € (-0.18%) at 1.1000 ($: YTD: 2.04%; 5YR: 1.7%)    
€ strengthened +0.0039 versus £ (-0.33%) at 1.1696 (€: YTD: 1.00%; 5YR: 17.9%)    
$ strengthened +0.0021 versus £ (+0.16%) at 1.2863 ($: YTD: 3.02%; 5YR: 16.7%)    
¥ strengthened +1.1400 versus $ (+1.05%) at 109.0400 (¥: YTD: 0.42%; 5YR: 9.8%)    
    
Selected Commodities    
Brent Crude ($/bbl) down -0.56 (-1.10%) at 50.27 (YTD: -24.31%; 5YR: -18.7%)    
WTI Crude ($/bbl) down -1.64 (-3.37%) at 47.09 (YTD: -22.88%; 5YR: -5.4%)    
Gold ($/ozt) down -18.89 (-1.15%) at 1621.99 (YTD: 6.51%; 5YR: 33.6%)    
Copper ($/mt) down -54.00 (-0.95%) at 5616.00 (YTD: -9.04%; 5YR: -4.7%)    
    
Data sourced from Bloomberg as of the close of last trading day.    
YTD = Year-to-date return; 5YR = five year return    

Nicholas Lowson Senior Portfolio Manager Kleinwort Hambros