NBK Capital: Signs reopening of the economic sectors in global markets contributed to the strong recovery of American markets

KUWAIT: MAY 05, 2020

Markets around the world took a much-needed breather in April as plans of gradually reopening the economy started to emerge. Many countries are now believed to have passed the peak in terms of new infections and are starting to work their way down the curve. The prospects of reopening the economy, along with the record fiscal and monetary stimulus plans put in place to counter the effects of the COVID-19, supported a solid rebound of the US markets during April. US markets generally outperformed their developed markets peers during April as the MSCI EAFE Index, representing the performance of developed markets outside North America, added 6.3% for the month against a 10.6% advance for the MSCI AC World Index.
In fact, April witnessed the best monthly performance for the Down Jones Industrial Average (DJIA) and the S&P 500 in more than 3 decades advancing 11.08% and 12.68% respectively. The tech heavy Nasdaq Composite, on the other hand, added 15.45% representing its best monthly performance over the past 20 years. In the meantime, volatility continued to retreat with the CBOE Volatility Index (VIX) declining to 34.15 at the end of April from 57.0 at the end of the previous month. Treasuries moved mostly sideways as the 2-year yield ended the month at 0.20% and the 10-year at 0.64% compared to 0.23% and 0.62% at the end of March.

The economic indicators published during April started to reflect, at least partially, the depth of the crisis caused by the Covid19-induced economic shutdown in the US. The ISM Manufacturing PMI declined to 41.5 in April from 49.1 for March, while the ISM Manufacturing Employment Index dropped to 27.5 from 43.8 over the same period reflecting the dire state of employment in the manufacturing sector. Overall, the US economy shrank by 4.8% during the first quarter of the year according to the preliminary estimates of the annualized US GDP. The latest initial jobless numbers for the week ending April 24 topped expectations at 3.84 million against expectations of 3.5 million and compared to 4.44 million for the previous week. The continuing jobless claims, on the other hand, recorded 17.99 million as at April 17 up from 15.82 million a week earlier. These numbers started to seep into the US unemployment rate which edged up to 4.4% for March. Consensus estimates is for it to reach a record of 14% for April, which higher than its peak during the financial crisis of 10.2% in November 2009. Other estimates predict an even worst outcome as the Federal Reserve Bank of St. Louis forecasts that unemployment could rise to as much as 30% during the pandemic. The consensus estimates for Non-farm payroll for April due to be released Friday 08 May, on the other hand, point to a decline of 20 million compared to a decline of 700K for March.

In Europe preliminary Gross Domestic Product figures for the first quarter of 2020 showed a decline of 3.8% compared to the previous quarter. Similarly, preliminary estimates showed France’s GDP declining by 5.8% during Q1 2020 compared to Q4 2019. The preliminary Markit Manufacturing PMIs for Europe’s biggest economies, France and Germany, declined to 31.5 and 34.4 in April from 43.2 and 45.4 respectively. The Markit Manufacturing PMI for the EU, on the other hand, declined to 33.6 on a preliminary basis from 44.5 over the same period. Meanwhile, the Stoxx Europe 600 index underperformed its global peers and advanced by 6.24% and so did the French CAC40 index with a gain of 4.0% for the month. The German DAX, on the other hand, managed an advance of 9.3%. Stocks in the UK also underperformed with the FTSE 100 Index rebounding for a gain of 4.0% for April after having plunged by around 14% in March. The Markit Manufacturing PMI for the UK dropped to 32.6 in April from 47.8 in March as manufacturing activity grinded to a halt a result of the pandemic-induced global lockdown.

The performance of Emerging markets was generally at par with that of the US, with some markets outperforming. The MSCI EM index managed a 9% recovery during April after a loss of almost 16% in March, while the MSCI Asia ex-Japan added 8.9% reducing its year-to-date loss to 11.4%. The best performing indices in the EM space included India’s Nifty 50 which added 14.7%, Taiwan Stock Exchange with a gain of 13.2%, and Turkey’s Borsa Istanbul 100 Index with a gain of 12.8%. Russia, Mexico and Shanghai underperformed recording gains of 5.7%, 5.5% and 4.0% respectively.
The GCC markets witnessed broad based gains despite the continued weakness in oil prices. The S&P GCC composite and the S&P Pan Arab Indices both added 8.2% during April driven by a strong performance in the UAE and Saudi Arabia. Markets in the UAE topped the list of GCC gainers with 14.4% for Dubai DFM General Index and 13.3% for Abu Dhabi’s ADX General Index. The Saudi Tadawul All Share index also rebounded strongly with a gain of 9.3% and was followed by the Qatar Exchange Index which added 6.8% for the month. Kuwait and Oman underperformed with the Boursa Kuwait All Share Index adding 3.2% in April after a loss of 20.6% in March and the MSM 30 Index gaining 2.6%. Bahrain was the only market recording a loss in the GCC with the All Share Index retreating by 2.9%. In the MENA region, Egypt’s EGX30 rebounded by 10.0% while Morocco’s MADEX retreated by a further 3.2% after the previous month’s loss of 21.3%.