With the second week of lockdown in the UK now underway it is starting to feel like there is more clarity than previously. Reponses from world governments and central banks aimed at supporting the global economy during the coronavirus pandemic have now been announced and the news is being digested by markets.
In the US, the Fed’s response has been impressive with an unprecedented decision to start directly financing the ‘real economy’ rather than just lending to private banks. Congress has provided the Fed with $454 billion with which to support upward of $4 trillion worth of loans, leaving it up to the central bank to determine how that credit should be divided between corporations, small businesses and state governments. For individuals, the Trump administration has also promised one-off payments of $1,000 per adult and $500 per child, discussions surrounding turning this into a regular payment have already begun.
Like the US, the UK’s virus aid package has far outweighed the response to the 2008 financial crisis. The Chancellor has already delivered four emergency packages and has now outlined £9 billion of aid for the self-employed bringing total measures to an incredible £65.5 billion. The NHS is now expecting to receive their first batch of new ventilators this weekend with a total of 61,000 expected over the next few weeks.
With regards to the spread of the virus, Italy has seen some good news with signs that the infection rate is easing following their lockdown, something we can perhaps expect here in the UK too. China is now returning to work after their lockdown and their latest manufacturing data showed a rebound in March which beats all expectations.
Equity markets have now moved up from their previous bottom with the FTSE 100 rising from it’s low of 5,000 and now settling into a trading range around 5,500. Investors are braced for a round of dividend cuts in the UK however we feel this to be largely priced in.
We are therefore now waiting for news surrounding the actual implementation and distribution of government aid packages and evidence of a stabilisation in the infection rate. Both things should start to happen over the next few weeks and at that point we expect markets to react favourably.