Market update – 13th March 2020

This week has been the worst possible conflagration of events. We started with the collapse of the oil price, which may or may not be coronavirus (C-19) related. That then moved into a phase when everyone starts to realize that the economic impact of isolation, or quarantine, is going to be enormous. So we have a collapsed oil price (a good thing), collapsed oil stocks (a bad thing) and an inevitability of recession. That’s not great, but it is manageable. Then the US treasury market starts to dry up. No one quite knows why, but the most plausible explanation appears to be that a) most traders are working from home b) many of them only started work after the Great Financial Crisis and have never seen this sort of thing before and c) everyone has got into a self-fulfilling panic. Then we throw in the catalyst to light the bonfire – America’s European travel ban. And whooomf, the whole thing catches fire.

If the Great Financial Crisis does teach us about the present, then we know that this will not blow over in a couple of days…but it will in due course. The Fed has acted with impressive speed, as has the Bank of England. The European Central Bank has underwhelmed so far, but give it time. Yesterday’s liquidity announcement was the Fed equivalent of ‘whatever it takes’ to keep the treasury market liquid. That is hugely important.

Markets will remain spooked. But they will also get over it, and quicker than in the Great Financial Crisis. The world’s authorities are very much better prepared for this with the experience of 2007-09.

The news from China on virus cases is massively better. But the story does not fit the lust for hysteria elsewhere in the world. There is an end game, we can see what it is, and we can see the journey that we need to go on to get there. It is going to be bumpy and uncomfortable, but there is a land on the other side. The greater scare at the moment is the markets themselves, rather than the virus. C19-wise, we have a quarter, or a year, of nastiness. But we will all quickly learn how to live with that and how to get on. Markets will be very efficient in pricing that in, in due course. What they have to believe, in the shorter-term, is that it is safe to do business with everyone else in the market. That is now the key stumbling block and the one that will keep everything randomly skittish.

Jim Wood-Smith – CIO Private Clients & Head of Research

IMPORTANT INFORMATION

Hawksmoor Investment Management Limited is authorised and regulated by the Financial Conduct Authority (www.fca.org.uk) with its registered office at 2nd Floor Stratus House, Emperor Way, Exeter Business Park, Exeter, Devon EX1 3QS. This document does not constitute an offer or invitation to any person in respect of the securities or funds described, nor should its content be interpreted as investment or tax advice for which you should consult your independent financial adviser and or accountant. The information and opinions it contains have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, but no representation is made as to their accuracy, completeness or correctness. The information and opinions expressed in this document, whether in general or both on the performance of individual securities and in a wider economic context, represent the views of Hawksmoor at the time of preparation and may be subject to change. Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested.