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Markets shrug off economic data to move higher once more – May’20 update


May 2020 update on Zurich Investment News.

Markets continued their strong recent run last week as the positive tech narrative persists. The next iteration of the economy will have its winners and losers with many market participants adhering to the idea that companies who have exposure to ‘work from home’, ‘play from home’ and ‘deliver to home’ are well placed to be the big winners. That all remains to be seen as the economic data continues to be, well, simply awful. U.S. figures (detailed fully below) were some of the worst on record, whilst here in Ireland unemployment was 15% at the end of March, and has risen to 28% at the end of April. This negativity was tempered by the fact that new cases were decelerating and parts of the global economy were getting back to work, as market participants hold onto the thesis that the figures are indeed terrible, but temporary. For example in the U.S., 80% of lay-offs were listed as temporary and the overall loss of jobs was smaller than consensus estimates. Within our own portfolios, Zurich have added selectively to medium-term credit across some of our multi-asset funds. Whilst volatility in spreads continues we believe there is value in companies with solid balance sheets and strong underlying fundamentals. As always, if you wish to discuss anything in this newsletter in further detail, please do get in touch. Weekly Investment News Stocks finished last week on a positive note, led higher by tech and energy stocks as oil posted its first back-to-back weekly gain in a couple of months. The gains also brought the technology-heavy Nasdaq Index back into positive territory for 2020. Q1 earnings season is also coming to a close as over 90% of large-cap U.S. companies have reported. The results have been slightly worse than expected, but given the ongoing pandemic it is hard to get a clear view on what the rest of the year might hold. Indeed, over approximately 25% of the S&P 500 have suspended guidance and forecasts for the rest of the year. Economic data continued to be extremely poor with the non-farm payroll figures from the U.S. on Friday producing some startling numbers. Over 20 million Americans are out of work, unemployment is at 14.7% (the highest since WW2), and the number of Americans working was at its lowest level since 2011. The numbers next month are unlikely to be any better. In Europe, negotiations continue over what a final centralised fiscal package may look like as a legal spat between Germany and the EU arose. The dispute centres on the legality of some of the ECB financing operations, an area of disagreement for some time. On the data front, eurozone March retail sales saw the largest decline since 2000, down over 11% for the month. Global PMIs also saw large falls for April as manufacturing data continues to hold up better than services, a theme we noted a number of weeks ago. The overall virus news was broadly positive as new cases continue to grow at a decelerating rate as economies progress with plans to reopen with the U.K. the latest to publish a partial roadmap over the weekend. Finally, the U.S. and China both spoke positively about trade developments following discussions on Thursday, raising hopes that the trade deal hasn’t been hit by the ongoing dispute over the origins of COVID-19.

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