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Weekly Market Update: 25 March 2020

March 2020

by Alex Brandreth

A lot can happen in a week. Right now, events around us are moving at a fast pace. We wanted to take the time to slow things down and, explain the key changes that have developed over the last week. This is the first of our weekly updates, which we’ll be sending round to you, our valued clients, going forward.

What’s happened over the last week? Governments and central banks continue to respond in a co-ordinated manner to support individuals, companies, financial markets and economies during the coronavirus pandemic.

At the end of last week, the Bank of England cut interest rates for the second time in as many weeks and, in doing so, took interest rates down from 0.25% to 0.1% – their lowest ever level in the Bank’s 325-year history! With interest rates now at record lows, the Bank of England also have to rely on other measures, to stimulate the economy. This interest rate move was accompanied by a re-start of Quantitative Easing (which is the purchase of government bonds by the central bank). Quantitative Easing was reintroduced to the tune of £200bn.  It’s not just the central bank that have been taking action, there have of course been significant changes introduced by the Government as well.  Stricter lockdown measures were introduced last night, following the failure of individuals to respect the social distancing requests.  Financial support for individuals has been introduced, for example paying up to 80% of the salaries of individuals unable to work due to the coronavirus pandemic.

Across the pond, US politicians spent the weekend disagreeing on the detail behind a staggering $2 trillion support package for the US economy – However, this was finally approved on Tuesday. The US central bank, the Federal Reserve, has also been keen to continue to support markets. The Fed has already cut interest rates to a range of 0% and 0.25% and restarted Quantitative Easing (QE).  On Monday 23rd March the Fed went a step further and announced that it will run an open-ended QE program. All other instances of QE announced so far have been at a capped amount, as highlighted by the Bank of England’s £200bn announcement. The Fed are also directly buying corporate bonds, which is another significant change to historic rounds of Quantitative Easing. The purpose behind doing this is that it aims to reduce the borrowing costs on corporates in the US, which have increased markedly following the Coronavirus outbreak. The uncapped amount highlights that central banks and governments will do everything they can do to support global financial markets, in these unprecedented times.

Against this backdrop markets continue to be volatile in both directions – on Tuesday 24th March, all stock markets breathed a sigh of relief and, the measures mentioned earlier by central banks, provided comfort to investors. FTSE 100 had its second biggest daily rise ever, while the Dow Jones, US stock market, had its biggest one-day gain since 1933. It’s not just stock markets that are seeing large moves, currencies and bonds are seeing fluctuations. Sterling hit a 35-year low against the US dollar last week at $1.15. It’s amazing to think that sterling was trading at $1.35 following on from the Conservatives election victory back in December. This is because the US dollar acts as a safe-haven asset in times of market stress.

A number of organisations such as the Financial Times provide free information on the virus in order that you can keep fully informed of developments.

Turning away from markets – the world of sport continues to also be impacted by the Coronavirus with the potential re-start to the Premier League being pushed back and a year-long delay to the start of the Tokyo Olympics being announced.

Let me leave you with a positive thought; China imposed lockdown at the end of January to stem the impact of the Coronavirus and now two months later these lockdown measures are easing, and life is starting to return to normal.

We live in unprecedented times and remain here to support you every step of the way.
 
Alex Brandreth
Chief Investment Officer

 

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