Market Flash 28 April

What happened?

- Equity markets started the week on a positive note with the S&P500 index up 1.5% and the Stoxx50 index up 2.6% as investors focused on progress against the virus and reopening plans in a light data release day. Oil prices slid again (WIT at USD11 per barrel and Brent at USD19 per barrel) and gold slipped to USD1694 per ounce. Futures are mixed this morning.

- Still in their recent range, sovereign yields rose throughout the day before retreating this morning. The 10-year US Treasury yield is at 0.65% and the 10-year German Bund at -0.45%. US credit spreads tightened marginally, to 207bp for IG and to 774bp for HY, while European spreads tightened more sharply, to 191bp for IG and 660bp for HY. While funding markets in the US have eased somewhat thanks to Federal Reserve actions, Euribor has seen some stress in recent days.

- Earnings continue to show a mixed picture and a lack of guidance, with HSBC setting aside its highest provisions for bad loans in 9 years while UBS showed some confidence in the quality of its loan book. ABB and Thales withdrew guidance and Novartis affirmed its forecasts. Today we get Alphabet, Starbucks and Caterpillar among others.

- We continue to believe that current levels and valuations (back to February levels) still under-estimate the risks ahead – whether in terms of the impact of the crisis on growth and earnings; how staggered and gradual the recovery will actually be; the risk of a second wave of contagion with de-confinement; and the more permanent loss of jobs if we see more bankruptcies. In short, we do not expect a seamless transition to the ‘after corona’ and therefore believe that downside risks remain.

What we are watching

- We are looking at gradual reopening announcements to see how they unfold across different regions, countries and industries, as the recovery cannot just be switched on. We look to see if cases remain contained with softer confinement measures to see if the path can be smooth.

- We keep an eye on how stimulus can be deployed to avoid waves of bankruptcies and defaults, and at how defaults can be ring-fenced if/when they happen. Indeed, it is still too early to tell if these measures will be enough to avoid second-round negative consequences from the outbreak, though the Fed in particular is doing everything in its power – and beyond – to limit these risks.

- We will look closely at earnings estimates as they are revised down. Markets may not be factoring enough adjustment yet, especially as valuations would not look as attractive with a much lower “E”.

- We keep an eye on credit and funding markets to see if massive central bank measures, both in the US and Europe, help ease the recent stress. For now, we believe that central banks will succeed in keeping systemic risks low to prevent a credit crisis. 

For more market insights from Natixis Investment Managers visit https://www.im.natixis.com/intl/insights/market-outlook

This email is promotional material and is provided for information purposes only. It may not be used for any purpose other than that for which it was conceived and may not be copied, published or distributed to third parties, in whole or in part. The provision of this email and/or reference to specific sectors or markets within this material does not constitute investment advice, or a recommendation or an offer to buy or to sell any security, or an offer of services. Investors should consider the investment objectives, risks and expenses of any investment carefully before investing. The analyses, opinions, and certain of the investment themes and processes referenced herein represent the views of Esty Dwek as of the date indicated, and are subject to change. There can be no assurance that developments will transpire as may be forecasted in this material.