April 2020 Investment & Economic Update
In our latest monthly investment update for April 2020, we take a look at how the global investment markets, economy and commodities are performing.
The FTSE 100 index of leading UK company shares closed at the end of March at 5,671.96 points, falling by 908.65 points or 13.8% during the month.
It was the biggest quarterly fall for the index in more than thirty years, with investors panicked by the economic damage caused by the coronavirus pandemic.
In the space of three months, leading UK company shares fell in value by a quarter, the biggest loss since Black Monday in October 1987.
A small rally towards the end of the month saw the FTSE 100 finish March at 5,672, down from its opening position of 7,542 at the start of 2020.
Around the world, global stock markets also experienced significant falls in the first quarter.
In the US, the Dow Jones Industrial Average fell by more than 20% from its previous high, entering bear market territory even faster than it did during the 1929 Wall Street crash.
In Europe, the pan-European Stoxx 600 fell by 27% in the first quarter, its worst performance since 2002.
The biggest losers as a result of the coronavirus pandemic were airlines, travel firms and banks.
Starting April with further sharp losses, the FTSE 100 fell again on news that banks are suspending dividend payments to shareholders and factory activity has slowed dramatically.
Banks bowed to regulatory pressure to suspend dividend payments during the crisis, keeping this capital in reserve as a buffer against potential losses.
UK manufacturing output and new orders slowed at its fastest rate in 8 years in March, according to a new survey. IHS Markit reported a purchasing managers’ index (PMI) of 47.8 in March, down from 51.7 in February. An index reading below 50 indicates contraction in the sector.
Rob Dobson, Director at IHS Markit, said: “The latest survey numbers underscore how the global outbreak of COVID-19 is causing huge disruptions to production, demand and supply chains at UK manufacturers.”
The latest official figures show that UK economic growth was flat at 0% in the final quarter of 2019. According to the Office for National Statistics, UK gross domestic product (GDP) was flat in the last quarter, confirming its initial quarterly estimate.
These figures mean that the UK economy grew by 1.4% in 2019 as a whole, up from 1.3% in 2018.
There’s widespread fear of an economic recession or depression within a year, according to a newly published survey. The YouGov poll found that almost three-quarters of us expect a recession (52%) or a depression (19%) within twelve months.
Nearly a third of respondents said they expect the British economy will be growing in a year, and only 1% thought it would be booming. The poll was carried out between 1st and 18th March, before the government introduced its stricter social distancing measures.
Business confidence has also slumped, with the latest business confidence index from Lloyds Bank falling to its joint lowest level since the depths of the global financial crisis. The index reached -3%, but this poll was taken in the week starting 9th March, again before the latest government measures were announced.
According to the survey, more than two-thirds of businesses said they were or would be affected by the coronavirus pandemic.
Elsewhere in the British economy, High Street prices fell at their fastest pace in nearly two years in early March. The British Retail Consortium reported shop prices falling by 0.8% in annual terms in the first week of March, following a 0.6% fall in prices during the same period in February.
BRC Chief Executive Helen Dickinson said: “There are a number of price pressures arising from the coronavirus crisis.”
In the property market, mortgage approvals reached a six-year high in February, ahead of the coronavirus pandemic hitting the UK economy. Mortgage approvals rose to 73,546 in February, their highest number since January 2014 and ahead of a forecast from a poll of economists.
The UK housing market is, however, expected to grind to a halt in March, as the government advised against all house moves and banks slowed their mortgage lending.
March saw two emergency interest rates cuts; first from 0.75% to 0.25%, and, just days later, to 0.1%. The Bank of England cut interest rates to an all-time low. It increased its quantitative easing stimulus package by more than £200bn, in a coordinated attempt to shore up the financial markets and domestic economy.
At the end of March, the Bank warned about the growing risk of widespread job losses and companies going bust, with the economic impact of the coronavirus pandemic becoming clearer.
At their latest Monetary Policy Committee meeting, the Bank left rates on hold at 0.1%, while warning of long-term damage to employment levels and economic growth. It confirmed that it “stands ready to respond further as necessary to guard against an unwarranted tightening in financial conditions, and support the economy.”
In line with a slowing global economy, the price of oil has collapsed to its lowest level since November 2002. Demand for crude oil fell sharply with slowing global economic activity, with benchmark Brent crude falling as low as $22.58 a barrel at one point at the end of March.
The fall in the price of oil means prices have been cut in half during the past months, with oil producers slowing or stopping their production. The fall in the oil price follows an earlier price way between Saudi Arabia and Russia at the start of March.
The benchmark 10-year government bond (gilt) yield fell below 0.3% at the start of April, with a continued rush to safety by investors.