Monthly Market Pulse: May 2020

Since you last received our Monthly Market Pulse on 28 April, governments around the world, including in the UK, have now started to partially re-open some sectors of economic activity. But one thing that we wanted to highlight, and which was recently picked up in an article The Economist titled ‘A Dangerous Gap’ [1], is the recent market sentiment whereby equity markets have got out of whack with the real economy and investors are concerned that market will at some point see a correction (Figure below). Perhaps that is one of the reasons we have seen investors piling into private debt to avoid the stock market volatility. Indeed, a recent article in Bloomberg [2] also described how family offices and high net worth investors are looking to private debt because they have nowhere else to put their cash.

Chart of the month: FTSE100 index has rallied since bottoming on March 24

Picture 1

Source: Investing.com

Politics

  • We see three key risks on the horizon: secondary outbreaks in the US, rising US-China geopolitical tension and political fragmentation in the Euro area.
  • US tension with China appears to be accelerating following the late-2019 truce in their trade war. Recent developments signal a shift in the battlefield for the broader Sino-American struggle from trade to capital and technology.
  • Over her in Europe, the tension between North and South in the Euro area is happening very much in the open.

Business & Economics

  • China abandoned setting a target for GDP growth for the first time in decades, citing “great uncertainty” caused by Covid19. Its economic growth shrank by 6.8% in Q1.
  • Germany’s economy, the largest in Europe, contracted by 2.2% in Q1, its sharpest quarterly decline since the first three months of 2009.
  • The latest unemployment figures from the US Department of Labor show that close to 39 million Americans have lost their jobs in just nine weeks. However, the rate of weekly losses has slowed sharply from its peak of 6.6m at the start of April.

Real Estate

  • Data from Nationwide House Price Index showed that UK house price growth was gaining strong momentum before the pandemic struck in March, and that the growth carried out into April despite the scale of the full lockdown.
  • UK house prices continued their ascent and climbed by 3.7% year-on-year in April, up from 3.0% year-on-year in March, the strongest annual growth in over 3 years.
  • Analysis by Knight Frank showed that as a result of Covid19 and the knock-on impact of the government lockdown, the UK is set for a historic decline in housing delivery. The research showed that the current lockdown will result in 56,000 fewer homes being delivered this year, a 35% decline.

Equity Markets

  • Global equities rallied 29% from their late-March lows to their April peaks as daily new cases of Covid19 stabilised and global governments moved quickly to mitigate the economic fallout of the self-imposed shutdowns.
  • The recent rally leaves equities overextended. Indeed, the more than 30% rally from the March lows in US equities leaves them at their most expensive valuations since the technology bubble of 1999-2000.

FX & Commodities

  • Gold prices have recovered from the March decline and made recent gains above $1,760 per ounce. UBP has recently revised their gold price forecast and expect prices to rise towards a “fair value” estimate of circa $2,100 per ounce.

As you may have seen, we recently funded our largest-ever loans. Our first 10% return p.a. loan was funded in 2 business days by 114 investors, and our second 10% return p.a. loan was funded in 4 business days by 110 investors. We are very pleased to see the continuous appetite for our loans and see this as a sign of increased appetite for private debt, as mentioned above. But if you missed that loan, keep an eye on our upcoming new loans and make sure you don’t miss the chance to lend from a minimum of £1,000.

[1] The Economist: A dangerous Gap

[2] Bloomberg: Ultra-Rich Families With Cash on Hand Pile Into Private Debt

 

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