Monthly Market Pulse: March 2020

Since our last Monthly Market Pulse the world economy has been turned upside down. When you received our February Monthly Market Pulse on 26 February, coronavirus had claimed 2,765 lives and infected 81,171 worldwide and Goldman Sachs had recently cautioned the risk of a correction in equity markets was “high”. Fast forward five weeks and coronavirus has claimed nearly 24,000 lives and infected over half a million people worldwide, stock markets have collapsed by a third and over one-third of the world’s population have been quarantined in their homes, the largest ever quarantine in history. In many countries, factories, airports, offices, schools and shops have been closed to try to contain the virus. One of the sharpest economic contractions in modern times looks like a done deal. Policymakers are now trying to avoid a liquidity crisis and a credit crunch.

Chart of the month: US weekly unemployment claims

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Source: US Department of Labour

Politics

  • Governments around the world have taken extraordinary measures to curb the coronavirus and alleviate its economic consequences. Many countries like France have declared that the country is “at war” with the coronavirus.
  • In the US, the Senate passed a $2 trillion (£1.7tn) coronavirus aid bill that is the largest economic stimulus in US history. The plan includes direct payments of $1,200 to most American adults and aid to help small businesses pay workers.
  • In Europe, the European Central Bank (ECB) launched an emergency €750bn ($820bn; £700bn) package to ease the impact of the coronavirus pandemic.

Business & Economics

  • China’s GDP probably shrank by 10-20% year-on-year in January and February.
  • The Economist’s article titled “Covid Carnage” summed it up pretty well: much of global commerce has ground to a halt. Some firms will never restart.
  • A record 3.3 million Americans filed unemployment claims last week as the Covid-19 pandemic shut down large parts of America’s economy (see chart of the month).

Real Estate

  • Banks in the UK pressed for a full suspension of the housing market after the UK government told buyers and sellers to delay transactions due to the virus.
  • The main issue is that it has become almost impossible to survey properties.
  • Until last week, our own anecdotal evidence showed that smaller building projects were still progressing and contractors on those building sites were still going to work because most are paid per day and are self-employed. That started to change when a new help package for self-employed was announced on 26 March.

Equity Markets

  • Coronavirus has destroyed $23 trillions in global market value since mid-February.
  • Many stock indices around the world hit multi-year lows and even largest daily losses on record. The FTSE 100 index fell to its lowest since October 2011.
  • Judging by our own anecdotal evidence from speaking to investors, many investors have been liquidating their equity positions and are looking for alternatives, with fixed-return lending to the right borrowers a favoured alternative.

FX & Commodities

  • Commodity prices tumbled amid gloomy forecasts for the world economy and industrial demand. Gold price, usually a haven in times of crisis, fell too as investors had to liquidate their positions. Silver, which is widely used in industrial production, fell to its lowest level since 2009.
  • Facing a double whammy of reduced demand and a price war started by Saudi Arabia, oil prices plunged, with Brent crude hitting a 17-year low of around $25 per barrel.
  • As investors continued the flight to safety and turned to the dollar, the pound fell to levels not seen since the 1980s. Uncertainty about Brexit amid the coronavirus crisis continued to weight on investor’s sentiment.

Amid the current volatile and rapidly changing situation, at Blend Network we continue to regularly and closely monitor the loan book. We are in regular contact with all of our borrowers, speaking with them even more than usual. We continue to closely inspect the development of our projects and our service to borrowers has not been disrupted; we are releasing money according to monitoring certificates as usual.

As mentioned last week in the message by our CEO, we remain strongly committed to continue lending to experienced property developers who come to us with a solid project, an enviable track record and a strong exit strategy. Our underwriters are working very hard to ensure that our pipeline of loans remains of high quality so that we can keep bringing you great risk/reward loans as we have done so far. So, keep an eye on our upcoming loans and start lending with Blend Network.

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