31 March - update from our investment partners
- 31st March 2020
Markets rallied yesterday as investors anticipated fiscal spending reaching the real economy and new coronavirus case growth slowed in Italy and Spain.
What has happened
Markets rallied yesterday as investors anticipated fiscal spending reaching the real economy and new coronavirus case growth slowed in Italy and Spain. Whilst the overall number of cases and deaths continues to mount in Italy the growth in new cases has slowed to 4.1% yesterday a marked improvement from a week ago. Markets were also buoyed by comments from Spain that they were seeing the beginning of a slowdown in the country.
What about the Chinese data
The major news is the Chinese PMI surveys, released overnight, which point to a rebound in economic activity post the lifting of the lockdown in the country. The manufacturing and the services measures both moved above 50 implying an improvement in conditions. Clearly this needs to be taken with a slight pinch of salt as the global slowdown that is expected from coronavirus will undoubtedly impact both supply and demand in China. However, the latest figures will start to add weight to the argument that we will see a V shaped recovery in the Western world once the lockdowns are concluded, particularly if fiscal stimulus provides a significant boost to activity in the interim.
Another round of fiscal stimulus
Our expectation was that markets would need to set their direction in the absence of new fiscal policy announcements however this did not last too long. There are rumours of a new US $600bn fiscal package being agreed between the White House and Democratic Congressmen, should this come to fruition it is likely to boost sentiment further. The bill is expected to include more state aid as well as specific assistance for the mortgage market and travel industries. This shows the political will to add to the current stimulus in order to cover gaps in previous policy or to address emerging risks in certain sectors of the economy – this reassurance may be more powerful than the stimulus itself.
What does Brooks Macdonald think
Markets have rallied from the lows of last week based on positive changes in the coronavirus narrative so there are fundamental reasons driving the resurgence in equities. Markets need reassurance that the timeline for market lockdowns are finite, that the government will support the economy in the interim and that when the lockdown does end, that growth will bounce back quickly. The slowdown in new case growth, fiscal stimulus from the US and the Chinese factory numbers all play to these three themes and give a reason for a more optimistic footing.
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