Monthly market update April '20

The following update is from Willis Towers Watson,  the views, thoughts, and opinions expressed in the text belong solely to the author.

Many countries were in lockdown for most of April, and the number of people who had tested positive for COVID-19 had grown to over 3 million by the end of the month. Despite this, April saw a strong bounce back in share markets globally thanks to some success (thus far) in slowing the spread of the virus, as well as significant support from central banks and fiscal stimulus from governments to support the economy. Despite large share market gains, data released during the month began to paint a grim economic picture due to COVID-19 and the associated government restrictions. For the first time in history, short-term oil futures went negative thanks to a combination of factors, including falling demand due to the pandemic, oversupply due to disagreements between OPEC and Russia, limited storage facilities and a squeeze in futures contracts as ETFs sold front month contracts to roll their exposures.

US equity markets led the sharp rebound in April, with the S&P 500 Composite returning 12.8% (in local currency terms). The Federal Reserve met at the end of the month and “committed to using its full range of tools” to continue to support the economy, having already cut rates to the range of 0% to 0.25% in March. Thus far, the Fed has increased its balance sheet by $2.5 trillion since the COVID-19 pandemic began, with the quantitative easing program including unprecedented purchases of corporate and high yield bonds to stabilise markets, whilst the US Government has continued the roll out of the USD $2 trillion relief package that was agreed at the end of March. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) fell to 30 in April, from 72, reflecting a significant deterioration in sales conditions in the housing market. The Markit US Manufacturing PMI similarly fell to 36.1, from 48.5, as the manufacturing industry continued to contract.

The Chinese equity market returned 4.0% (in local currency terms) for the month, as measured by the Shanghai Composite Index. China is a number of months ahead of other countries regarding the impact of COVID-19, and began easing some restrictions over the month (including in Wuhan, where the virus was first transmitted). Despite this, the Caixin Manufacturing PMI dropped slightly to 49.4 in April, from 50.1 in March, although this was still a significant improvement from February. The USD depreciated slightly against the CNY over the month by 0.3%, now buying 7.06 CNY.

European equities, as measured by the Euro Stoxx 50 Index, returned 5.3% over the month (in local currency terms). The Eurozone PMI Composite Output Index dropped to 13.5 in April, below the previous all-time low of 29.7 in March, as business activity continued to be heavily suppressed. The Eurozone Consumer Economic Sentiment Index fell to -22.7 from -11.6 over the month, reflecting a further decline in consumer confidence about the economy (-100 indicates an extreme lack of confidence, 0 neutrality and 100 extreme confidence).

The Australian equity market also recovered some lost ground over the month, with the S&P/ASX 300 Accumulation Index returning 9.0%. Despite strict lockdown laws in place for the entire month across the country, all sectors gained ground, with the best performers being Energy (25.2%), Information Technology (21.8%) and Consumer Discretionary (16.4%). The worst performing sectors were Consumer Staples (2.6%), Financials (2.9%) and Utilities (3.2%). The RBA met at the beginning of May, keeping the cash rate at the record low of 0.25%, and maintained their commitment to “do whatever is necessary to ensure bond markets remain functional”. The RBA are continuing to target a three-year bond yield of 0.25%, having now made around $50 billion worth of purchases in an effort to support the economy, with a sharp rise in unemployment remaining their biggest concern. The Federal Government’s $130 billion JobKeeper package also began at the beginning of May, although will be backdated to include April, providing a boost to businesses impacted by COVID-19, and many of their employees who have been stood down or put on reduced hours. As expected, the Ai Group Australian Manufacturing PMI fell to 35.8 from 53.7 over the month. The Australian listed property market rose by 13.7%, as measured by the S&P/ASX 300 A-REIT Accumulation Index, outperforming the broader market index by 4.7%.

Most major global bond yields fell in April, with the exception of the Australian 10-year Government bond yield, which rose by 10bps to end the month at 0.91%. This led to largely positive returns from international fixed interest, as the US 10-year Government bond fell by 7bps to 0.63%, and the UK 10-year Government bond yield fell by 12bps to 0.23%. Similarly, the 10-year German Government bond yield fell by 13bps to
-0.59%, and the Japanese 10-year bond yield fell by 6bps to end the month at -0.04%.

The Australian dollar also rebounded strongly over the month, appreciating by 5.8% against the USD and finishing April at 64.9 US cents (up from 61.4 US cents at the end of March). The Trade Weighted Index closed at 57.8 for the month, up from 54.7, signalling a steep appreciation in the AUD against the currencies of its major trading partners.

This information is general information only and does not take into account your individual objectives, financial situation or needs. Accordingly, before taking any action, you should consider whether it is appropriate to you, having regard to your objectives, financial situation and needs. You should obtain a copy of legalsuper’s Product Disclosure Statement (PDS) which is available by contacting legalsuper or via its website at legalsuper.com.au before making a decision. Past performance is not a guide to future performance.