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Last Week in the City: A longer lockdown life

Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped equity markets this week (14 to 17 April 2020).

Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped equity markets this week (14 to 17 April 2020).
Garry white employee

Garry White

in Features


Markets were more stable this week, despite more than a third of the planet still having their movements restricted. In the UK, the lockdown has been increased for three more weeks and will possibly have to stay in place until the end of June, the government has said. About 14% of the US labour force has lost their jobs in the last month and the International Monetary Fund expects the global economy will shrink by 3% this year. The US oil price hit an 18-year low, despite a deal by major producers to slash output to support prices. The cut simply wasn’t big enough.

Nevertheless, markets have been supported by government and central bank action and hopes restrictions will be lifted soon. The FTSE 100 was up 0.7% over the week by mid-session on Friday and the FTSE 250 was up 3%. At Charles Stanley, we remain cautious on the market outlook, as is explained below.

Staying connected and helping each other

Some Charles Stanley staff have already been helping clients in self-isolation – and we have been looking at new and innovative ways to keep in touch and stay connected.  To help we have launched a new community page.

Whether you need a phone call just for a chat, someone to drop off essential groceries or medication if you are unable to go out yourself, or if you are able to offer a helping hand to someone else or would like to contribute an article, just complete the form on our website. You can also email us at [email protected] or speak to your usual Charles Stanley contact.

A business and market development update from our Chief Executive Paul Abberley can be found here.

Charles Stanley Radio

To support our remote living and working lives, we have launched Charles Stanley Radio to bring you the latest news from Charles Stanley.

John Harrison, Charles Stanley’s Head of Information and Cyber Security, discusses the importance of staying vigilant online here.

Let's talk about Markets: In the latest broadcast – The Balance Between Health and Wealth – Jon Cunliffe and Garry White discuss the ongoing effects of Coronavirus here.

Oxford Office Manager Ria Shepheard sheds light on what she has struggled most with in isolation -and how she has tried to stay both motivated and entertained in lockdown here.

You can listen to previous broadcasts on the dedicated Charles Stanley Radio page here.

Investment strategy

Charles Stanley’s Investment Strategy Committee met again this week and updated its scenario analysis on the Covid-19 crisis. The three scenarios have a best case, where the virus numbers peak soon, allowing an early return to more normal conditions. However, this is not the Committee’s base case. There is still a significant amount of bad news to be released and more investors and commentators to adjust to the new conditions. The Committee feels that Scenario Two is the most likely.

Scenario One (5% probability – best case)

A short-duration downturn of about six weeks, followed by a sharp recovery. Most companies survive with grants and loans for the period of little or no revenue. Furlough schemes leave many workforces intact. The advanced world economy records a bad quarter, with a fall in GDP of 10%+, which is concentrated in the six weeks of closures. Recovery takes three quarters to get back to the previous total. This scenario means that damage to profits and dividends is concentrated in one half-year period, which is followed by good rates of profit growth with dividend restoration.

Scenario Two (60% probability – the Committee’s base case)

This scenario sees twelve weeks of substantial disruption and closures, followed by another twelve weeks of partial closures. Advanced country GDP falls 15% in the first quarter of the crisis, and only recovers one third of this in the following quarter. It takes about a year to get back to starting levels of GDP. Many companies survive thanks to furlough and to increasing debt, but this results in more-geared balance sheets and an impaired capacity to pay dividends. Many companies will lose their “BBB” investment-grade status in debt markets. Companies that do well in these conditions will be favoured by stock markets, including healthcare, hygiene products, food, food retail, online retail and online business services, as well as online entertainment, education and training.

Scenario Three (35% probability – the worst-case outcome)

There are various ways things could get worse. Substantial closures could continue for longer. There could be relaxations only to be followed by the re-imposition of controls if new cases of the infection accelerate. The downwards pressure on “BBB” ratings, coupled with cashflow difficulties, could cause tensions in the junk bond market, though recent Fed actions may mitigate this in the US market. More companies could go bust, with the possible bankruptcies of some major and newsworthy corporations. Governments could respond to souring public mood with more direct controls over business conduct – and with more penalties against shareholders.

Pensions update

There was an important announcement in the recent UK Budget affecting pension contribution limits. Tim Venner looks at a change to pension contribution limits impacted by the Tapered Annual Allowance, designed to reduce the available contribution allowance for higher earners here.

Market outlook

Garry White thinks that ‘lockdown for longer’ is a major market threat and believes a new low is possible in the next six months. Read his argument here.

The new economy after the pandemic will be smaller with more companies and people worse off from the period of lost work, lost cash flow and lost jobs. John Redwood looks at gloomy short-term prospects here.


The US recorded 5.2 million unemployment claims last week, taking the total over the past month to more than 20 million. It is the worst stretch of American job losses on record and represents about 14% of the US labour force.


The International Monetary Fund (IMF) cut its global growth forecast in its April World Economic Outlook. The IMF now expects global economic output will shrink by 3% in 2020, down from its forecast three months ago for growth of 3.3%. The IMF expects the global economy will rebound next year, with a growth rate of 5.8%. This appears ambitious even though the organisation said the rebound was likely to be limited to China and emerging economies in Asia, with the US, the EU, the UK, Japan, Canada and most of Latin America expected to experience slower recovery that will leave their economies in 2021 below 2019 levels. To read the IMF report and see the data click here.

The Office for Budget Responsibility, Britain’s fiscal watchdog, warned that the UK economy could see a record 35% drop in output if the lockdown remained in place until June.

Chinese GDP fell 9.8% in the first quarter compared to the final three months of 2019, leaving it 6.8% down on the year. As the only country so far to have taken major decisions to end lockdown it should record a better second quarter, but will still be well below where it was before the crisis struck. 

Bond markets

The bond market is warning of more fallen angels, investment grade bonds that lose status. Some 96 companies are on the watch list, led by 30 companies in the entertainment, oil and financial sectors. There is likely to be an increase in bankruptcies as companies can run out of cash quickly in these conditions.


US oil prices hit another 18-year low close to $18 a barrel on Friday, with energy markets still under pressure from a record glut created by the coronavirus pandemic. Crude price slipped this week despite a landmark by the Opec+ group of producers to slash oil production by almost a tenth of global supply. However, markets don’t think the cut is enough because the slump in demand is likely to be greater.

Garry White looks at the politics driving oil markets here.


The UK lockdown has been extended for three weeks, as countries around the world seek different ways to ease the tough measures to help businesses and the economy. More than a third of the planet is currently under some sort of restriction of movement.

Donald Trump gave up some time ago on his idea of a grand re-opening of the US economy after Easter. This week, he abandoned two more hopes. The president announced he would not, after all, be deciding when the US went back to work, but will leave that to be settled state by state, by State Governors. He also set out a loose advisory timetable offering a three phased return to more normal working for State Governors interested. 

Corporate support

UK Chancellor Rishi Sunak launch a loan scheme for companies in the “squeezed middle” that are unable to tap the existing programmes the Treasury launched shortly after the country was locked down on 23 March. Distressed companies with turnover of more than £45m will be able to access state-backed bank loans of up to £50m, with no upper limit on the size of the businesses able to access the scheme.

The European Union plans to help block foreign takeovers of European companies struggling with the virus downturn. It wants to allow governments to invest in weak companies, which could include some form of ownership. A focus for the regulator is to counter unfair competition from state-owned firms, which are the backbone of economies such as China's. "This in principle falls outside the scope of EU state aid control and can, in particular, be important for interventions by member states to prevent hostile takeovers of strategic companies by foreign purchasers," a spokesman for the European Commission said.

The main US program offering assistance to restaurants and other small businesses suffering from the Covid-19 pandemic has run out of money, less than two weeks after the $349bn program went into effect. Applications for the so-called Paycheck Protection Program, which offers loans that convert into grants if used to keep staffers on payroll, are no longer being accepted by the Small Business Administration.

As the Fed says, it is grants, not loans that many companies need right now. John Redwood looks at money, loans and solvency here.

State & city bailouts

Half of the world's countries have approached the International Monetary Fund (IMF) for emergency loans. More than 100 countries have asked for emergency assistance so far, according to Kristalina Georgieva, the IMF's managing director. She said the IMF was ready to use its "full toolbox and $1 trillion firepower" of lending capacity, noting that 10 countries have so far received emergency funding. Half of the remaining countries should receive their requested financial lifelines by the end of April.

New York’s mayor Bill de Blasio appealed to Donald Trump for a federal bailout for the city. Mr de Blasio said he spoke to Mr Trump and Vice President Mike Pence on Wednesday and made his case for a major cash infusion, a day before releasing an $89.3bnbudget with billions in cuts reflecting the city’s shattered economy. He pointed to the bailout dedicated to the airline industry and said the president's native city deserves similar support.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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