Above page content

    Site map  Cookie policy

Features

Last Week in the City: Oil sees historic slump

Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped equity markets this week (20 to 24 April 2020).

Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped equity markets this week (20 to 24 April 2020).
Garry white employee

by
Garry White

in Features

24.04.2020

An unprecedented crisis in the oil markets hit equities at the start of the week, but they recovered some of their poise by Friday. The glut of oil means there is no longer much storage capacity left – and the futures contract that collapsed involves physical delivery of the oil in the middle of rural America. A high-stakes version of “pass the parcel” saw the price slump to almost minus $40 a barrel. However, the market stabilised as the week progressed and the contracts expired.

The debate of when to end lockdowns continued apace. There are concerns that an early easing of restrictions could result in a dangerous second spike in infections. This has already happened in Singapore and Northern Japan.

The FTSE 100 was up 0.7% over the week by mid-session on Friday and the FTSE 250 fell 2.5%

Lessons from history about the Covid-19 slump

What has the equity crash of 1987 got in common with the recent market fall? Quite a lot, as it happens. As Mark Twain is reputed to have said: “History doesn’t repeat itself, but it often rhymes”. This is certainly the case with recent market falls and Clive Worlock, one of Charles Stanley’s most experienced Investment Managers, compares the two market crashes. His conclusions could even be described as reassuring. Click here for the full, fascinating story.

A time to take stock

Covid-19 has offered Charles Stanley the opportunity to reassess our investment values. It is pleasing that, despite or indeed because of Covid-19, we remain very happy with our investment process. Investment Manager Will Dobbs explains all here.

Last Week in the City commentary continues below these important statements from Charles Stanley.

Vigilance required: Online fraudsters are taking advantage of the crisis

In the last few days, we have had reports that several clients have received an email from someone pretending to be from Charles Stanley.

Fortunately, it was obvious it was a fake, but criminals are increasingly posing as official sources to obtain personal and financial details.  The City of London Police has seen the same level of cyber-criminal activity in three days that it would normally see in a month.

Please stay vigilant and take particular care. If the contact is unexpected and you are asked to do anything, such as click on a link or call a phone number, stop and independently verify that contact first. Share any sensitive information through the website or call your usual Charles Stanley contact.

John Harrison, Head of Information and Cyber Security at Charles Stanley discusses the importance of remaining vigilant online on Charles Stanley Radio. Click here to listen to this important advice from John.

Charles Stanley Community

This week you can see new content from several of our partners on the Charles Stanley Community page, to inspire you with things to do or learn. Highlights include Harlequin’s Chris Robshaw talking about mental resilience and discover the answers to some of the things you always wondered about – but never knew – with Country Life’s Curious Questions. All this and more on our Community Page here.

Market commentary continues below…

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.

Listen to expert commentary from our research team and analysts, informal Q&As with our colleagues to hear about their experiences adapting to this new way of working and specialist content from our partners. The radio page with all previous recording can be found here. The two latest episodes are:

Let's Talk About Market; Bonds, Equities and the Information Vacuum – Head of Equity Research Tina Cook, Market Strategist Scott Gardner and Chief Investment Commentator Garry White discuss the difficulties faced by investors in current markets here.

Fireside Chat – Charles Stanley’s Business Development Director Cliadhna Law talks us through her new daily structure working from home – and how the absence of a commute has generated more free time for creative endeavours. Listen here.

Covid-19 treatment

The failure of a potential Covid-19 treatment hit markets late in the week. Remdesivir, a drug thought to be one of the best prospects for treating Covid-19, failed to have any effect in the first full trial. The drug is in short supply globally because of the excitement it has generated after US President Donald Trump claimed was “promising”. The drug did not work – and the trial was stopped early because of side-effects. News of the failure was posted on a World Health Organisation (WHO) clinical trials database but later removed. A WHO spokesman said it had been uploaded too soon by accident.

Trade War

Just before Covid-19 spread in the West, President Trump was celebrating a first-round trade deal he signed with China. However, the agreement had a break clause in it – John Redwood takes a look at how China is changing the global economy here.

Varying market responses

Coronavirus is dominating the thinking of equity market participants – and the virus certainly sparked the big bear dip in most markets. It does not, however, seem to be the severity of the virus that differentiates between the performance of different countries’ stock markets. John Redwood takes a look at the reasons why here.

Policy responses

One of the remarkable things about the global economy today is the almost-uniform policy being followed by most governments. Brazil and Sweden, however, have bucked the consensus. John Redwood looks at the differing policies here.

In the UK, the Treasury is considering offering 100% guarantees on loans up to £25,000 for the UK's smallest businesses. Chancellor Rishi Sunak said in March that UK-based small and medium-sized business could apply for interest-free loans to help them with Covid-19 related difficulties. However, companies say they are still finding it difficult to get credit. Reports noted that eligibility for loans had not yet been decided (how small can the business be?) to qualify for a loan for which the lender gets a 100% guarantee. An announcement is expected next week.

The European Commission is still squabbling over funding the Covid-19 response, with the richer nations such as Germany and the Netherlands reticent about using their taxpayers’ cash to fund a pan-European response. John Redwood looks at the contrasting response of Europe and the US here.

Energy markets

This was an unprecedented week in oil markets. The world is suffering from a glut of oil and the demand slump caused by the Covid-19 crisis means storage capacity is running out. This storage shortage caused WTI futures prices to turn negative for the first time ever. The headline-grabbing fall in West Texas Intermediate (WTI) crude oil prices – to almost minus $40 a barrel – reflects specific factors concerned with a lack of storage for US-produced oil. These futures contracts involve physical delivery of oil at Cushing, Oklahoma – and this landlocked area is difficult to transport oil to world markets and all the storage tanks are full. This meant there was a large-scale version of “pass the parcel” with no trader wanting to hold the contract on expiry. The price of WTI futures recovered and the May contract is trading at about $15.50 a barrel.

UK oil producers’ revenues are derived from a different oil contract, Brent crude, not the US WTI contract that collapsed. Brent is a better barometer of the global oil market – and is regarded as the oil industry benchmark. The price of Brent futures fell about 23% over the week by mid-session on Friday to trade at about $21.50 a barrel. This level is clearly a short-term headwind for the UK oil majors such as BP and Royal Dutch Shell, both of which are scheduled to issue earnings reports next week. It is also worth highlighting that markets expect a rebound in oil prices in the months ahead and larger oil companies have increased their credit lines with banks.  

Technology

The Nasdaq composite is down just 5% in the year to date, showing the resilience of technology investment in the quest for further growth. One reason for this is that the size of its addressable market has increased now older people have started using web-based services to keep in contact with family and friends during the lockdown. Garry White looks at the rise of the Silver Surfer here.

Downbeat data

A raft of negative news has started to be released as economic data and corporate reporting catches up with the period when the virus first hit. Here is a selection of the numbers from this week.

UK retail sales fell a record 5.1% in March. Figures from the Office for National Statistics (ONS) showed the steepest slide since it started collecting the data in 1996. Food and online shopping rose, and alcohol sales also jumped. But clothes sales tumbled by 34%. Online shopping as a proportion of all retail reached a record high of 22%, the ONS said.

More than 4 million Americans filed for first-time unemployment benefits last week, taking the total in the five weeks since coronavirus lockdowns began to a record 26 million. The number means that more people have lost their work in the last five weeks than the number of jobs created by the US since the financial crisis a decade ago.

One German government source has told news agency Reuters that they expected GDP will shrink by 6% during 2020 – which would be the worst outcome since the Second World War.

Indeed, business optimism in Germany saw a record slump in April to a record low. The monthly IFO survey of German business morale slumped to 74.3, from 85.9 in March. Companies reported that their current economic situation has deteriorated alarmingly and that they’re extremely worried about the future.

London Gatwick airport said it did not expect passengers to come back to pre-Covid levels for another four years. Chief executive Stewart Wingate said the airport, which mainly serves leisure routes for holidaymakers in the south-east, still had “confidence in the medium and longer term” and could survive even if flights did not resume this summer.

Property

UK housebuilders staged a mini rally on hopes that construction workers can return to work soon. Persimmon also said it had been selling house online during the lockdown.

Commercial property landlords in the UK have been temporarily banned from taking legal action against tenants who have not paid their rent, to protect retailers and other businesses from “aggressive rent collection” during the Covid-19 crisis. The restrictions will be withdrawn on 30 June.

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.

Get in touch

Find out more

Our focus on clients has endured since the foundation of Charles Stanley in 1792 and has helped make us one of the UK's leading wealth management firms. Your interests give shape to everything we do.

Please call us to talk about your circumstances or complete the enquiry form.

020 3797 1783

Make an enquiry

If you have some questions we'd be happy to help.

Get in touch

Coronavirus (COVID-19)

Our latest information

Stay updated

Subscribe to our weekly email newsletter.

Subscribe here

Local Office

Your local office

Your local Charles Stanley office can help advise you on a wide range of investment management services.

Select an office

Share

Newsletter banner signup