22 ★ Wednesday18 March 2020
John Plender
Markets Insight
Walmartwas among the stock gainers as
the promise of direct aid to US consumers
by the Trump administration helped
markets rebound from their biggest daily
fall since 1987.
Oppenheimer analysts turned positive
on Walmart, saying the retailer typically
outperformed during US recessions.
Walmart is one of the few retailers able to
manage shifts in consumer spending so,
unlike most of its peers, 2020 financial
targets look to be underpinned,
Oppenheimer said.
L Brands, the Bath & Body Works and
Victoria’s Secret owner, dropped after
withdrawing its first-quarter earnings
forecast and drawing down a $950m
credit line. Fellow retailerUlta Beauty
pulled 2020 guidance and announced
store closures.
Wells Fargoled a group of eight banks
to say in a joint statement that they
would tap funds from the Federal
Reserve’s low-interest discount window.
Co-Diagnosticssurged after the US
Food and Drug Administration gave the
green light for its Covid-19 test to be used
by laboratories. The regulator also gave
emergency use authorisation to
diagnostic kits made by companies
includingThermo Fisher,Laboratory
CorpandHologic.Bryce Elder
Wall Street Eurozone London
Telecoms stocks were the top performers
in Europe as a rebound powered by a
government aid announcement helped
pull the Stoxx 600 to its biggest gain
since November.
Iliadled the telecoms sector after its
fourth-quarter results showed improved
trends in France, its home market, and
contained losses in Italy. The company
said the economic impact of Covid-19 was
likely to be limited to equipment
shortages and a slower mobile network
rollout, with long-term guidance
reiterated. Investors also welcomed the
return of Iliad founder and leading
shareholderXavier Nielto frontline
management with the billionaire
appointed as chairman.
Osramslid on speculation that AMS
could back out of its takeover of the light
maker, or that the banks underwriting
AMS’s rights issue to fund the transaction
could pull out of the deal.
Danonegained after JPMorgan
Cazenove upgraded to “overweight”,
saying its defensive portfolio of food
brands should prove relatively resilient.
Dufry, the Swiss-based owner of duty-
free shops, slipped to its lowest level
since 2009 as another wave of travel
restrictions threatened to test its year-
end debt covenants.Bryce Elder
ITVmissed out on a UK market bounce
as the outlook darkened for advertising
spend.
The delay of Euro 2020 by a year and
guidance fromDixonsthat it may reduce
or even eliminate its marketing budget
were bad omens given 65 per cent of
ITV’s operating earnings come from UK
advertising, said analysts.
Retail is ITV’s biggest advertising
category, accounting to 15 per cent of its
total, while leisure and travel account for
9 per cent and 5 per cent respectively,
Morgan Stanley said.
Weak sterling combined with demand
for defensives and food retailers to lift
the wider market.Antofagastawas the
FTSE 100’s biggest gainer after full-year
results from the copper miner came with
a more generous than expected dividend.
Chemical makerElementisnearly
halved after Bank of America repeated
“underweight” advice citing the risks of a
debt covenant breach. “Elementis may be
able to stay within covenants, or
renegotiate, but the fall in the share price
has created a significant risk of dilution if
this turns out not to be the case,” it said.
Cineworldhit a record low after cinema
closures and a switch to home releases by
big studios were seen to increase the
strain on its balance sheet.Bryce Elder
3 Wall Street bounces back from worst
sell-off since the ’80s
3 Strengthening dollar leaves sterling
weakened to September lows
3 Yields on US Treasuries rise as
markets stabilise
Wall Street rebounded a day after its
worst sell-off since 1987 as the White
House signalled it wanted to roll out an
aggressive spending package aimed at
combating the fallout fromcoronavirus.
The S&P 500 was up 5 per cent by
midday in New York, having fallen 12 per
cent the previous day, after it was
reported that the US administration
would ask Congress for stimulus worth
between $800bn and $850bn.
“It’s going to be big, and it’s going to be
bold,” Donald Trump told reporters.
Following the US president’s remarks,
the tech-heavy Nasdaq Composite
climbed more than 5 per cent while the
Dow Jones Industrial Average rose 4 per
cent. But strategists warned that any
market rebound was likely to be
shortlived without firmer indications that
governments were bringing the spread of
the contagion under control.
Investors needed to be convinced that
“rigorous quarantining and isolation can
work, and that the immediate recurrence
of outbreaks is not inevitable”, said Alan
Ruskin at Deutsche Bank.
Guy Monson, chief investment officer
at Sarasin & Partners, alsoadvised
caution. “The Covid-19 crisis will surely
leave longer-term scars on the world
economy and we must expect, at best, an
L-shaped recovery across many regions,”
he said. “The damage in Europe will be
concentrated in the service sectors —
tourism, accommodation, travel and retail
— where output is not easily recovered.”
Europe’s travel and tourism sector
dipped a further 5.4 per cent yesterday,
taking its fall for the year to more than
50 per cent. However, the broader Stoxx
Europe 600 bounced back 2.3 per cent,
having tumbled 5 per cent on Monday.
Elsewhere in Europe, the UK’s pound
weakened more than 2 per cent against a
strengthening dollar to hit $1.200, its
lowest level since last September.
A respite from the risk-off mood led to
a sell-off in government debt such as US
Treasuries, with the yield on the 10-year
note climbing 16 basis points to 0.89 per
cent. But the oil rout continued, with
Brent crude sliding more than 3 per cent
to stay beneath $30 a barrel.
WTI, the US marker, fell by a similar
margin to $27.94 a barrel.
Ray Douglas
What you need to know
Uptick on Wall Street after White House pushes for more stimulus
Indices rebased
Source: Bloomberg
Jan Mar
Nasdaq Composite S&P Dow Jones Industrial Average
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 2506.70 1143.67 17011.53 5294.90 2779.64 76112.08
% change on day 5.05 2.61 0.06 2.79 -0.34 6.95
Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $
Level 99.428 1.097 107.385 1.201 7.011 5.021
% change on day 1.386 -1.526 1.637 -2.199 0.194 0.765
Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond
Yield 0.890 -0.436 0.003 0.555 2.714 8.044
Basis point change on day 10.810 2.800 -0.250 12.100 4.200 69.100
World index, CommodsFTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 276.03 29.53 28.25 1487.70 12.97 2486.20
% change on day 2.03 -0.84 -1.50 -4.81 -17.79 -2.37
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
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Jan 2020 Mar
1920
2560
3200
3840
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Jan 2020 Mar
960
1280
1600
1920
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Jan 2020 Mar
5120
6400
7680
Biggest movers
% US Eurozone UK
Ups
Dish Network 18.41
Lyondellbasell Industries Nv 17.98
Dow 17.14
Skyworks Solutions 17.09
Flir Systems 16.02
Mapfre 19.97
Iliad 19.28
Telefonica 17.80
Kpn 15.80
Colruyt 15.23
Antofagasta 16.05
Just Eat Takeaway.com N.v. 10.53
Ocado 10.38
Admiral 10.11
Schroders 9.95
%
Downs
L Brands -22.75
Alliance Data Systems -21.61
Darden Restaurants -21.40
Capri Holdings -16.87
Oneok -13.51
Prices taken at 17:00 GMTCnp Assurances -15.01
Thyssenkrupp -8.89
Airbus -8.64
Gecina -8.55
Hugo Boss -8.19
Based on the constituents of the FTSE Eurofirst 300 EurozoneJd Sports Fashion -17.95
Meggitt -17.44
Carnival -15.84
Itv -12.64
Tui Ag -10.76
All data provided by Morningstar unless otherwise noted.I
nvestors are understandably shell-
shocked after the extraordinary
recent turbulence in markets,
which saw US stocks fall almost
30 per cent from their high point in
February to their close on Monday. Yet
despite the near-certainty of a global
recession, the fear looks overdone.
This is not just because equity valua-
tions are no longer so dangerously
stretched. The key to stabilising mar-
kets in the face ofcoronaviruslies in the
policy response and it isclear thatpoliti-
cians and central bankers are beginning
to take the measure of the problem.
On the monetary front, the US Fed-
eral Reserve’spackage of measureson
Sunday was far from paltry, with the tar-
get range for the federal funds rate low-
ered by one percentage point to a range
of 0 to 0.25 per cent, and asset purchases
of at least $700bn promised. The Fed is
also preparing a range of policies to sup-
port the flow of credit to households and
businesses.
It is not short of ammunition. James
Knightley, chief international econo-
mist at ING, points out that the Fed’s
balance sheet peaked at $4.5tn in early
2015, equivalent to about 25 per cent of
US gross domestic product. Today, the
balance sheet is about $4.3tn or around
20 per cent of GDP. To get back to 25 per
cent would imply balance sheet expan-
sion of more than $1tn. That is hardly
small potatoes.
The European Central Bank’s stimu-
lative measures looked disappointing
by contrast and were not helped by
president Christine Lagarde’sinept sug-
gestionthat it was not the central bank’s
job to align eurozone governments’ bor-
rowing costs.
That sounds about as far from the
rhetoric of her predecessor Mario
Draghi as it would be possible to go. This
nonetheless served to underline the dif-
ficulty of addressing a crisis when the
deposit rate is already negative, while
highlighting the crucial role of fiscal pol-
icy in such circumstances.
Here the news is positive, with Ger-
man policymakers — hitherto dyed-in-
the-wool fiscal conservatives — com-
mitting themselves to dowhatever it
takes, in effect, to ensure that busi-
nesses and households are protected
from the economic consequences of the
virus. That is quite something. The
French, Italian and Spanish govern-
ments are moving in the same expan-
sionary direction, all of which reflects
the very different politics of crisis man-
agement when compared with 2008. It
is, after all, much easier to persuade the
public of the case for using taxpayers’
money to confront a public health catas-
trophe than to justify putting a safety
net under bankers who have done their
best to wreck the global economy.
Also good news is the extent to which
risk is no longer as seriously mispriced
as it was earlier in the year. The search
for yield has for the moment been
reversed. This was conspicuously true
last week in the high-yield bond fund
sector, which saw the second-largest
outflows on record, according to data
provider EPFR Global. There were also
significant outflows from emerging
market bond and equity funds.
In the midst of this flight to quality,
fragility in the banking system appears
a much lesser concern than in 2008.
Share prices are down, reflecting the
squeeze on profits that will result from
lower interest rates, but the credit
default swaps market is not sending
storm cone signals. While there were
sharp falls in the leveraged loan market
last week, much of the damage will have
fallen on non-bank financial institu-
tions. And the Fed’s recentemergency
fundingfor short-term borrowing mar-
kets has probably mitigated what could
have been potentially lethal liquidity
shortages among hedge funds.
Pension funds offering defined bene-
fits will be the big casualties of the mar-
ket slide. Their liabilities will be
squeezed by the flight to quality as lower
bond yields reduce the discount rate
applied to future pension obligations,
causing the liabilities to balloon. The fall
in the value of equities and risky credit
and alternative investment categories
will hurt their assets. That said, equities
are delivering a higher income from
which to pay pensions, as long as com-
panies maintain their dividends.
In defined contribution schemes, peo-
ple nearing retirement have cause for
concern since their funds will have
shrunk. The market shock will, inciden-
tally, provide a good test of diversified
growth funds, which claim to offer
equity-style returns at a lower risk than
in the equity market at large. The long-
standing question of whether such
funds really can smooth returns and
offer a free lunch to investors may find
an answer this year.
Is it time to look opportunistically at
equity markets? So much about corona-
virus remains unclear that this would
require bravery. But the worst-hit sec-
tors of the market look oversold.
Investors have been
rocked but there are few
reasons to be fearful
Pension funds offering
defined benefits will
be the big casualties
of the market slide
MARCH 18 2020 Section:Markets Time: 17/3/2020-18:39 User:andy.puttnam Page Name:MARKETS2, Part,Page,Edition:EUR, 22 , 1