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In this week’s Diary a tour of the world from East to West with an undercurrent of optimism as we move from tentative reopening to the evidence of activity.
The FTSE 100 is called to open 145 points higher 6138. Asian stocks climbed with U.S. and European futures Tuesday despite escalating geopolitical risks, with Japan leading gains as the world’s third-largest economy reopened. Treasuries dipped in early trading after the three-day U.S. weekend, while the dollar retreated. Futures on the S&P 500 were up on Friday’s close, suggesting a positive open on Wall Street. Shares rose in Tokyo, Sydney and Seoul, while Hong Kong stocks also pushed higher, showing signs of stabilizing after weekend unrest. Shanghai saw more modest gains. Crude oil advanced past $34 a barrel in New York.
This is the second in my series of regular updates on the world of funds, investment trusts, ETFs and all things related to Fund Research.
One of the more challenging conversations that I am having with clients at the moment is trying to explain why stock markets have been so resilient during recent weeks in the face of such seismic economic disruption.
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Risk assets recouped some of their losses in April on signs that the Covid-19 infection rate was levelling off. There were also signs that monetary and fiscal policies were beginning to have an impact, with the global economy beginning to gradually reopen.
Global stock markets reached new all-time highs in early February before suffering a sharp and broad based sell-off as it became clear that Covid-19 had not been contained within China and would likely reach most countries to varying degrees. The economic impact – mainly the result of public health countermeasures rather than sickness or death – is unknown in magnitude or duration as there are no precedents in the current globalised supply chain world. The virus is expected to peak within the next month or so, though this is a quickly evolving situation.
Global shares returned 3% in December and 9% over the final quarter although this was largely eroded by an 8% rise in sterling to $1.33 for UK-based investors. While the decisive Conservative election victory helped the FTSE 100 gain 196 points last month to 7,542, the total return of 3% (including dividends) lagged trade-related rallies in the US, Japan and Asia (9%) and the eurozone (5%).
Global growth continues to slow with a widening gap between advanced and emerging economies. The OECD recently downgraded its 2019 global GDP forecast to 2.9% (1.5% advanced/4.5% emerging) but contracting global trade and the repercussions of the US/China tariff dispute mean there are still downside risks. Although negative real interest rates and robust consumer spending should avert recession, the lack of new fiscal stimulus suggests a period of stagnation for many advanced economies.
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