10 ★ FINANCIAL TIMES Wednesday8 April 2020

COMPANIES & MARKETS

Matthew Harrison

Markets Insight

M

arkets have been buoyed

by the extraordinary

actions of central banks

and the hope that,

although the Covid-

pandemic has spread, the US has not

reached crisis levels. But we believe that

optimism will be shortlived, as the

reality sets in that the path to reopening

the US economy is going to be long and

marredbystopsandstarts.

Itwillbefullyresolvedonlywhenvac-

cines are widely available in spring

2021, at the earliest. Our research

suggests that early social distancing is

the best way to avoid a painful path to

peak cases or a sustained decrease in

day-on-daynewdiagnoses.

But with 20 states still not issuing

“stay at home” orders prior to April, we

worry that the US could face one of the

longestperiodstopeakglobally.

The market is underestimating the

midterm risk to the economy from a

delayedUSpeakandthelikelyvolatility

thatcouldcauseforriskassets.

South Korea took about 10 days from

lockdown o peak, while China took 15.t

Our models suggest that Italy will take

roughlythreetimesSouthKorea.

The market seems to assume the

Italian experience is the right proxy for

other western countries but the data

suggest US cases are growing at a faster

ratethanItaly’s.

Further, we question the ability of the

US to ramp up the extensive testing that

waseffectiveincontrollingthespreadof

thevirusinSouthKorea.

In particular, the city ofDaegu, which

has about 70 per cent of all Korean

cases, tested twice the amount per

capitacomparedwithNewYork.

We estimate the US will need testing

capacity of about 1m a day — or 10 times

its current capacity. We do not expect

that until May. This lack of investment

willfurtherdelaytheUSrecovery.

However, we do believe the US can

start to come outthe other side y lateb

April. This would put the initial US peak

at around three times longer than

China’sandasmuchas1.5timesItaly’s.

However, as the US contemplates an

initial reduction in social distancing to

allow an economic restart, coastal gov-

ernors will face the risk of imported

casesfromcentralstates.

Thus, we believe the overall peak in

the US could be as much as four times

China and two times Italy, implying an

initial US reopening in mid-to-late May.

Investors should appreciate that this

willnotbea“normal”reopening.

The US can confidently return to

work only after there is adequate capac-

ity in hospitals; a broad public health

infrastructuretosupporttesting;robust

contact tracing to curtail “hotspots”;

and widespread availability of blood

testingtoseewhoisimmune.

We see this happening in waves start-

inginthemidsummer.

But we do not expect 100 per cent of

USworkerstoreturnuntilthereisavac-

cine vailable, as social distancing can-a

notberelaxedfullywithoutone.

Further, large venue events such as

sport, concerts and theme parks are

likely to remain shut or attendance

cappedat10-25percentofpreviouslev-

els. This delayed peak and slow return

to work has led our economists to

push back projections for a significant

US recovery to the third quarter of

nextyear.

We expect sectors including travel,

leisure, sport and entertainment to

remainunderpressure.

However, despite those concerns over

the timing of a US recovery, we believe

the market is ignoring the role the drug

pipelinecanplay.

Society cannot afford to lose sight of

thefactthatonlyavaccinecanprovidea

true solution to this pandemic and that

governments should continue to part-

nerwithindustryleaderstobringprom-

isingcandidatestomarket.

We also believe governments should

invest in large-scale vaccine manufac-

turing, knowing that some of those

investments may prove fruitless as not

allcandidateswillwork.

To provide the billions of vaccine

doses required, that investment needs

tooccurnow,forthe2021season.

In the interim, promising antivirals

and antibody therapies are in the pipe-

line. We believe some of these drugs

may be successful and will help reduce

theseverityofthedisease.

Such successes could alleviate the

strain on hospitals and allow public

health officials to support an earlier

restartoftheeconomy.

Thus, with treatments for those

infected available as soon as mid-April

and initial vaccine data on the horizon

by early summer, the market could look

past the slow US recovery and start

againtopriceinfuturegrowth.

Matthew Harrison is managing director

and head of biotech industry research at

Morgan Stanley in New York

Investors still too

sanguine about

pandemic threat

We expect sectors

including travel, leisure,

sport and entertainment

to remain under pressure

A bear squeeze meant this year’s biggest

fallers led a US market rebound as the

possible slowing of coronavirus deaths

helped revive risk appetite.

Cruise line operatorsNorwegian Cruise

Line,Carnival nda Royal Caribbean

Cruises the S&P 500’s index’s worst—

performers of 2020 — all jumped.

The rally also lifted retailersKohl’s nda

Capri, owner of the Michael Kors brand,

which have both lost around two-thirds

of their value so far this year.

Airlines seeking government bailout

funds joined the rally withAmerican

Airlines nda Alaska Air aining after theg

US Transportation Department set out

final rules around their minimum service

requirements needed to qualify for the

assistance.

Starbucks ose on hedge fund Pershingr

Square revealing a 10 per cent stake.

Among the fallers wasGilead Sciences,

which has outperformed so far this year

thanks to optimism around its potential

treatment for Covid-19.

Two late-stage trials of its drug,

remdesivir, are due to deliver results

shortly.

“Our fingers are crossed with the rest

of the world but our expectations are

low,” said broker RW Baird. “Well-

designed studies with exquisitely

targeted therapies have failed more often

than succeeded.”Bryce Elder

Wall Street Eurozone London

Amadeus, the travel booking database

operator, rebounded after HSBC added

the stock to its “buy” list.

The Spanish group, which last week

shored up its balance sheet with a €1.5bn

fundraising, has enough liquidity to get

through a bear-case scenario of air traffic

falling 80 per cent this year, HSBC said.

Travel agency bookings should recover

sharply next year and Amadeus, as “a

strong technological leader in its

industry”, should benefit as airlines cut

costs by signing up to its global

distribution system, the broker argued.

Unibail nda Merlin urged as risings

bond yields helped the real estate stocks.

The signs of easing stress in the credit

markets also helped banks, including

Société Générale nda BNP Paribas, rally.

Atlantia etreated on a report that ther

infrastructure group was in talks with the

Italian government over a possible fine of

more than €3bn as compensation for the

2018 Genoa bridge collapse.

As part of a settlement, Atlantia had

agreed to cut its 88 per cent stake in

motorways division Autostrade to below

50 per cent, with the state’s infrastructure

fund and government-controlled lender

taking minority stakes, Reuters reported.

However, there was said to be no

common ground yet on a law ratified in

February that made it easier for Italy to

revoke Autostrade’s licence.Bryce Elder

Assura issed out on a London marketm

rebound after the healthcare real estate

investment trust raised £185m with a

deeply discounted share placing.

The company said it was taking

advantage of a pipeline of development

and acquisition opportunities.

A gain of more than 7 per cent in the

year to date had made Assura the

property sector’s best performer with the

stock trading well above net asset value

on hopes that the Covid-19 crisis would

boost investment in GP surgeries and

NHS primary care facilities.

Hard-hit stocks such aseasyJet,ITV

andJD Sports ed the wider market rallyl

as risk appetite returned.

Rolls-Royce unced after Fitch leftbo

the jet engine maker’s debt on an

investment grade rating, albeit with the

outlook revised to negative.

Builders’ merchantTravis Perkins oser

after Exane BNP Paribas turned positive.

“We believe the market is discounting

too much near-term distress and

forgetting the group’s competitive

advantages coming out the other side,”

Exane said.

Restaurant Group ained on the backg

of an upgrade to “buy” from HSBC, which

saw no need for the Wagamama operator

to raise extra liquidity unless site closures

stretch beyond the third quarter.

Bryce Elder

3 Wall Street extends gains on hopes of

Covid-19 infections rates stabilising

3 Rebounding travel and leisure groups

boost European bourses

3 Renewed appetite for risk assets lead

to haven sell-off

Global stocks climbed for the second

consecutive day, buoyed by signs that the

spread of coronavirus was decelerating.

Wall Street, which ended Monday 7 per

cent higher for its best day in a fortnight,

was up another 2 per cent by midday.

Tourism and travel companies, which

have sunk sharply this year, were among

the strongest performers with Royal

Caribbean Cruises and American Airlines

up around a fifth.

Investors appeared encouraged by

signs that measures taken to restrict the

movement of citizens was proving

effective in slowing the spread of

coronavirus.

There were 73,135 cases of Covid-

confirmed worldwide as of Monday with

the number of new cases across the globe

remaining steady for the past two days.

New case numbers in Europe appeared

to be peaking, raising hopes that

lockdowns will soon be eased.

Austria was set to be the first country

on the continent to relax strict quarantine

measures with the opening of some

shops next week, although “the fact that

PM [Sebastian] Kurz delivered this

positive message wearing a face mask

and standing behind a protective screen

does, though, provide a graphic reminder

of the fact that normality remains a

distant prospect”, said analysts at

Rabobank.

In Europe, travel groups were again

among the region’s top performers with

the sector up 6.6 per cent, outperforming

the 1.9 per cent rise in the broader Stoxx

Europe 600 benchmark.

But some investors remained sceptical

that these gains could last.

“This is a typical monster bear market

rally, except it’s taken two weeks rather

than three months,” said Luca Paolini,

chief strategist at Pictet Asset

Management. “Markets are reading too

much into the daily infection rates.”

Elsewhere, London’s FTSE 100 gained

2.2 per cent while the pound fell 0.9 per

cent against the dollar to $1.2334 as the

UK awaited updates on the health of

Prime Minister Boris Johnson, who was in

hospital being treated for coronavirus.

The renewed appetite for riskier assets

led to a sell-off in havens, with the yield

on the 10-year US Treasury rising 10

basis points to 0.78 per cent while gold

slipped 0.7 per cent to $1,651 an ounce.

Oil prices edged higher on hopes that

Saudi Arabia and Russia would reach a

deal that would reduce crude output.

Brent crude, the international

benchmark, was up 0.2 per cent to $33.

a barrel.Ray Douglas

What you need to know

Beaten-down travel stocks claw back some losses

Stoxx Europe  Travel & Leisure index

Source: Refinitiv







Apr   Apr

The day in the markets

Markets update

US Eurozone Japan UK China Brazil

Stocks S&P 500 Eurofirst 300 Nikkei 225 FTSE100 Shanghai Comp Bovespa

Level 2721.12 1284.98 18950.18 5704.45 2820.76 78809.

% change on day 2.16 1.74 2.01 2.19 2.05 6.

Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $

Level 99.807 1.088 108.995 1.231 7.055 5.

% change on day -0.872 0.928 -0.124 0.408 -0.498 0.

Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond

Yield 0.776 -0.315 0.002 0.408 2.527 7.

Basis point change on day 11.920 11.400 0.300 7.600 -17.800 -7.

World index, Commods FTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)

Level 304.24 33.12 26.27 1648.30 14.56 2288.

% change on day 2.86 -0.36 0.00 2.18 1.15 0.

Yesterday's close apart from: Currencies = 16:00 GMT; S&P, Bovespa, All World, Oil = 17:00 GMT; Gold, Silver = London pm fix. Bond data supplied by Tullett Prebon.

Main equity markets

S&P 500 index Eurofirst 300 index FTSE 100 index

| |||||||||||||||| |||

Feb 2020 Apr

1920

2560

3200

3840

| ||| |||||||| ||||||||

Feb 2020 Apr

960

1280

1600

1920

| |||||| |||||||| |||||

Feb 2020 Apr

3840

5120

6400

7680

Biggest movers

% US Eurozone UK

Ups

Kohl's 27.

Capri Holdings 24.

Royal Caribbean Cruises Ltd 22.

Alliance Data Systems 19.

Carnival 19.

Klepierre 12.

Thyssenkrupp 10.

Amadeus It 10.

Arcelormittal 10.

Cnp Assurances 9.

Carnival 22.

Easyjet 15.

Rolls-royce Holdings 12.

Itv 11.

British Land 10.

%

Downs

Gilead Sciences -5.

Activision Blizzard -4.

Kroger Co (the) -3.

Adobe -2.

Servicenow -2.

Prices taken at 17:00 GMT

Atlantia -5.

Carrefour -3.

Jeronimo Martins -3.

Grifols -2.

Ses -2.

Based on the constituents of the FTSE Eurofirst 300 Eurozone

Hikma Pharmaceuticals -6.

Ocado -4.

Astrazeneca -2.

Severn Trent -1.

Relx -1.

All data provided by Morningstar unless otherwise noted.

APRIL 8 2020 Section:Markets Time: 4/20207/ - 18:50 User:stephen.smith Page Name:Markets-002, Part,Page,Edition:EUR , 10, 1