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Market Concerns

  • The fear of a second wave of coronavirus infections
  • The collapse in corporate earnings
  • The shocks reverberating from the economic data
  • Pick-up in geopolitical tensions between the U.S. and China less around trade, more focussed on Covid-19 

The grim economic data is highlighted by more than 3.8 million Americans filing new claims for unemployment benefits last week, bringing the six-week total since the start of the lockdowns to curb the coronavirus pandemic to more than 30 million.

The US government will on Friday May 9 release unemployment data for April, which will show the fullest picture of the number of Americans who have lost their jobs because of the crisis. A figure around -21 million is expected.

Economists expect a 40% contraction in US economic growth in the second quarter.


However, with huge US and Global stimulus plans U.S. stocks have recovered approximately 50% of the severe falls they experienced between the middle of February and the end of March. Indeed, US stocks clocked up their best month since 1987 in April. Investors generally in the last 10 years have learned to ‘buy the dip’ even if this dip has been particularly steep.

Investors moving back into stocks means that the

  • Dow Jones Industrial Average is +5.32% over 1 month, only down 9.65 % over 1 year
  • S&P 500 is +7.6% over 1 month, down just 2.26% over 1 year
  • NASDAQ is + 12.52% over 1 month and + 9.82% over 1 year

Note: Europe is not as strong with the performance over 12 months showing:

  • FTSE 100 -20.78%
  • German Dax -13.06%
  • French CAC 40 -19.15%

Equity Prices have slipped at the start of May as:

  • a string of companies issued profit warnings
  • President Donald Trump stepped up condemnation of China over trade and the handling of the Covid-19 outbreak.

Fixed Income

The global stimulus has to be paid for and therefore global bond issuance is increasing. U.S. Treasury Secretary Steven Mnuchin is increasing the amount of debt he plans to issue in quarterly refunding auctions to a record high of $96 billion to provide government funding as the economy heads into a recession caused by the coronavirus.

The department announced Wednesday to auction the first re-booted 20-year bond on May 20, with an expected initial offering size of $20 billion – larger than most analysts expected — and unveiled plans to boost overall issuance with a focus on increases to longer-term debt.

Investors responded by selling Treasuries, pushing longer-maturity yields higher in particular. The 10-year rate, a benchmark for global borrowing, climbed to 0.72%. While it’s the highest since mid-April, it’s still only about 40 basis points above the record low set in the market turmoil of March.


With global demand down about one third oil prices saw an epic plunge last month which saw Brent Crude trade below $20 per barrel for the first time in 18 years. 

What is even more startling is West Texas Intermediate, the US pricing benchmark, fell with a severe drop in demand coinciding with levels of US production remaining robust despite storage tanks being just weeks away from reaching capacity!

Contracts for the US benchmark West Texas Intermediate for delivery May delivery tumbled to minus $40 per barrel; the first ever time in negative territory. A negative price like this means producers were paying buyers to take oil off them! Extremely rare!

Oil Worries

  • Tarnish the commodity as safe investment
  • Colossal imbalance in US supply and demand
  • US producing 2 million b/d more than it needs and lacks storage
  • Consumption needs to increase and/or oilfields shut


  • The US government might urge deeper OPEC cuts
  • Tariffs on foreign oil imports into US
  • Freeing up more storage capacity
  • Including in Strategic Petroleum Reserve
  • Paying producers to keep oil in the ground
  • Extending financial support to oil companies

Brent Crude – the international benchmark – is better insulated as it is seaborne, making storage less of an issue as long as traders can charter oil tankers

As OPEC+ producers begin to cut output as part of an historic agreement, U.S. explorers are shutting production in the country’s biggest shale fields Oil has since recovered from last month’s epic plunge accelerated as production cuts start to whittle down a supply glut and more economies ease their coronavirus lockdowns. WTI is at $24 per barrel while Brent topped $30 a barrel for the first time since April 15.


Currently trading at $1700 per ounce about $200 below the all-time high reached after the Financial Crisis in 2011. Gold has performed well over the last six weeks as you would expect given its ‘safe haven status’ but it did not do this in the initial stages of this Financial Crisis.

Back at the beginning of April, gold’s price rise was reluctant with the ‘yellow metal’ trading at circa $1600 per ounce. This was because investors had such hefty losses on the equity holdings, they were selling their profitable gold positions to reduce the overall losses on their portfolios. 

Now gold is behaving as we would expect it theoretically would.

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