12 May - update from our investment partners

  • 12th May 2020

What has happened

It was a relatively quiet day for markets yesterday bar incremental news around re-openings and a small number of earnings results. The US market was effectively flat though some European markets were slightly more buoyant.

Oil supply cut insufficient to find equilibrium

The oil price did garner some attention yesterday however as the supply/demand dynamics came back in to focus. Saudi Arabia announced that they would cut production over the next month to the lowest level in 18 years to provide some stability to oil prices. In actual fact, both US WTI and Brent Crude sold off yesterday suggesting that markets are skeptical that such a deep level of production cuts can be executed in such a short timescale. Additionally, investors calculated that even with these cuts there will likely be a large amount of oversupply given the depressed demand caused by coronavirus.

Pick up in new case growth weights on Asian sentiment

Asian markets were softer overnight as a pick up in new case growth in South Korea weighed on sentiment. Whilst governments fully recognise that there are trade offs in lifting lockdown there will be little appetite for increased easing if new cases get out of hand. The numbers from Wuhan and South Korea are important given they are some of the earliest areas to ease lockdown and any resurgence in coronavirus cases will likely push out the timescales for the Western economies taking their first tentative steps. There have been many stories about new case growth picking up over the last month so we will need to see if these figures are sustained before incorporating into our economic projections.

What does Brooks Macdonald think

A quieter day for markets allowed volatility expectations to fall yet again. The equity rally has been quite significant in the last week so markets were due a more range bound few days. New case growth has moved away from the market’s focus in recent weeks as further falls have been incorporated into the market’s base case. Should we see a resurgence in South Korea or other economies that have re-opened this may test risk appetite but we would want to see this trend sustained before drawing any firm conclusions.

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