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09 April 2020

Stocks bounce worldwide, but are we out of the woods?

James Rowbury, Investment Research Coordinator

The Covid-19 pandemic continues to be the focus of investors’ attention, as UK markets respond to its daily development. During the first two days of the week, UK stocks saw significant gains as Italy and Spain – two of the worst hit EU countries – showed signs of improvement in infection cases and deaths. The UK, however, continues its lagged trajectory, as the death toll continued to rise, surpassing 7,000.

News of Boris Johnson’s admission to intensive care earlier this week gave way to a brief stint of Sterling weakness, which later began to stabilise as clarity emerged around the severity of his condition. Mr Johnson’s condition now remains stable. All in all, Sterling has been up 0.64% against the US Dollar and 0.27% higher against the Euro over the past week.

At the time of writing, expectations of eased lockdown restriction begin to fade, as the UK braces itself for an extended period of at least three weeks. Though much expected, the paralysed UK economy now faces another daunting period of inactivity. For now, markets remain stable owing to an extended credit line of cheap debt and asset purchases from the Bank of England. The CBOE UK100 has advanced 4.65% since the beginning of the week.

UK companies have continued their dividend cutting spree, retracting their guidance as they look to preserve cash during the shutdown in activity. More buoyant investor sentiment has been created by the green shoots appearing from nations in the exit period of lockdowns. Reported Chinese manufacturing activity has picked up somewhat –a consequence of eased restrictions. The epicentre of the virus, Wuhan City, has now re-opened, giving hope to those in search of evidence that there is an end to the spread of the virus.

Stocks worldwide have also been on the rise, as some countries showed signs of improvement while others announced measures to combat the pandemic. Global coronavirus infection cases have already surpassed 1.48m and deaths 88,500.

Austria, Denmark, and the Czech Republic are the first countries in Europe to announce the loosening of measures and lockdowns. Denmark has announced the reopening of kindergartens and schools on 15th April while the Czech Republic and Austria said that some non-essential shops will be allowed to open over the coming week. The quick initial responses from these countries – school shutdowns, restrictions to public life and bans on mass gatherings – helped to halt the spread of the virus and to protect their healthcare systems from getting overstretched.

Countries around the globe will be following further developments closely as they may set trends. Japan’s Prime Minister, Shinzo Abe, has declared a state of emergency, as infections surpassed 4,000 and announced a US$357bn stimulus package, which is worth 7% of Japan’s GDP. This declaration will give the power to seven prefectures to request non-compulsory business closures, such as gyms, cinemas, museums, and escalate social distancing.

Over the past week, the US S&P500 has gained 10.48%, Hong Kong’s Hang Seng grew by 3.36% and Japan’s Nikkei 225 has surged 8.39% in response to the news.
Stocks bounce worldwide, but are we out of the woods?

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