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Are markets set to bounce back?

by LLB Editor
31st Mar 20 9:45 am

Every little step forward for the markets will help to repair investor confidence following the catastrophic start to the year for equities, according to Russ Mould, investment director at AJ Bell.

Tuesday’s 1.8% gain for the FTSE 100 puts the index at 5,662 and follows a decent showing on Wall Street last night where the S&P 500 jumped 3.4%. Hong Kong’s Hang Seng jumped 1.4% and Shanghai’s SSE Composite held firm.

Equity markets are taking their cue from various bits of positive data. China’s latest purchasing managers’ indices data was better than expected and put the country back into expansionary territory, which is measured by a figure above 50. Having hit a low of 35.7 in February, the PMI figure bounced back to 52 in March versus expectations for 45.

Mould said: “Also giving investors hope was the fact that Italy had the lowest daily virus infections in two weeks. Signs of a slowdown in new COVID-19 cases are important indicators for the market, particularly in Italy which has been one of the worst affected countries.

“A slowdown and then a peak in new cases could give markets more of a chance to work out the duration and depth of damage done to corporate earnings and cash flows.

“New data showed the UK wasn’t feeling very well even before the coronavirus crisis struck. GDP was flat between October and December 2019, manufacturing fell 1.7% and construction dipped 0.1%.

“Among corporate news, engineering conglomerate Smiths announced four things that are becoming trends in the world of business. Its Chinese operations are getting back to work and it has joined the growing number of companies deciding not to pay dividends, becoming the thirteenth FTSE 100 member to do so. Interestingly among those blue chips, Royal Dutch Shell’s latest update would suggest it is going to do everything it can to sustain its dividend.

“Smiths is deploying its skills in areas to help fight the pandemic, namely ramping up production of ventilators. Finally, it has delayed the demerger of its Medical arm, following in the steps of Travis Perkins which recently paused the spin-off of Wickes, its consumer DIY operations.

“The other big news of the day is data on supermarkets from Kantar. Sales grew by the fastest rate in over a decade during the past 12 weeks, with March the biggest month ever on record. Households made five trips on average between 16 and 19 March, illustrating the pressure put on grocers and how they’ve done a fantastic job of coping with this surge in demand.”

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