European markets underwent another choppy session yesterday with a strong rebound in oil prices helping on the one hand, however the big jump in US weekly jobless claims initially helped to keep a lid on the upside.

The surge in oil prices was down to a comment from President Trump that said an agreement to cut over 10m barrels a day of output was being discussed by the Russians and the Saudi’s.

This helped markets in Europe close higher on the day, as well as prompting US markets to reverse some of its losses of the previous day, while oil prices posted their best ever one day percentage gain.   

Asia markets haven’t been able to build on these rebounds largely due to some scepticism that the claimed reductions in output are actually deliverable in the short to medium term, with Moscow saying that nothing had been agreed, prompting oil prices to slip back from their peaks.

On the positive side there is set to be an OPEC extraordinary meeting on Monday, which will be held by way of webinar to discuss the prospect of some production curbs.

The latest services PMIs from China and Japan showed slight improvements, but were still weak at 43 and 33.8 respectively.

As a result of this caution, markets here in Europe have opened lower as we come to the end of a week that has been long on volatility, but a little short on overall direction, with most of last week’s gains, still just about intact, though once again oil stocks are proving to be the main drag, with BP and Royal Dutch Shell both lower, as oil prices slip back from their highs.

Today’s services PMI numbers from Europe for March offer a sobering window into the damage done to economic activity across the region as a result of the recent lock downs in Spain, Italy, France and Germany. We already know from last week’s flash numbers for Germany and France that the impact was considerable, even if it wasn’t quite on the scale of the declines in the February numbers seen in China.

Nonetheless with the lockdowns likely to be extended to encompass the whole of April, today’s numbers are likely to be the beginnings of even more significant economic challenges in the weeks ahead.

In Spain, which has seen the death toll from the virus rise sharply in recent days, the February services report came in at a fairly respectable 52.1, however this morning’s number of 23 is an absolute shocker, and a record low.

It’s also a reminder to Europe and the EU especially, if any were needed, of the economic carnage being wreaked by the virus. Likewise, in Italy, where the death toll also continues to rise, we’ve seen a similar cratering, from 52.1 to an eye wateringly record low of 17.4. That’s not a contraction, that’s an economic collapse, and utterly tragic.

The France and Germany numbers also came in weaker at 27.4, and 31.7 respectively.

This morning’s news that the UK government will provide £400m to the bus industry over the next 12 weeks to keep services running while the country is in lockdown has seen the shares of the likes of Stagecoach, and National Express pick up.

With fewer people travelling on public transport Stagecoach said this morning that passenger journeys at a regional level were down 15% on normal levels, while vehicle mileage has dropped by as much as 50%. In an attempt to conserve cash, the company has said it would be winding back its Megabus and intercity bus services in England and Wales from 5 April.

FirstGroup has said it welcomes the government offer of financial support in terms of maintaining its bus services, as has Go-Ahead Group, both of whom have said that the £167m of new funding. Go-Ahead have said that passenger traffic on their services has dropped by 90% so the new financial support is crucial in looking to maintain the level of service.  

Swedish retailer H&M has reported this morning, following in the footsteps of its retail peers, having closed most of its stores in its various markets. Net sales for March showed a decline of 46%, and while Q1 profits of SEK2.5bn, managed to beat estimates, the company said it expected to report a loss in Q2 due to coronavirus.

Online sales were a bright spot, rising 17%, while shops in China were gradually starting to reopen, as demand there slowly starts to recover.

Ryanair this morning announced it was taking a €300m charge on its fuel hedges while also saying that its full year profits remain in line with its current guidance, albeit at the lower end. The aircraft fleet is expected to remain ground until the end of May, with the company saying it was unable to give any guidance on the outlook for 2021.

Associated British Foods, owners of Primark announced this morning that CEO George Weston and finance director John Bason would be taking 50% pay cuts, along with the CEO of Primark Paul Marchant given that revenues in the current financial year are likely to be much lower in the general retail business. The group said it had thus far not seen any material effect in its other businesses of sugar, grocery and ingredients.

UK defence and aerospace contractor BAE Systems, this morning said that they would be deferring a decision on the payment of a dividend until July 2020, when first half results are due to be released. As far as Q1 trading is concerned there has been little in the way of disruption to the business, however for Q2 there is a worry that some disruptions, which are now starting to make themselves felt could continue into the second quarter. In respect of guidance for 2020 the company has said there will be an impact however it remains too early to assess what that effect is likely to be.

If today’s US March payrolls report really were an accurate representation of the US jobs market last month, it would be an absolute horrific number. Fortunately for the markets its unlikely to be that bad, however that merely delays the pain until the April numbers come out in May.

Like the ADP report earlier this week, today’s US payrolls number only contains the data up until the week ending the 14th March, which means the last two weeks of 10m weekly jobless claims won’t be in it.

This means there is little likelihood of breaking the record US payrolls number decline of March 2009 of 663k jobs lost in today’s number. That particular record is likely to be blown away a month from now, however could well still see a decline in today’s payrolls report if this week’s ADP report is any guide.

Expectations are for a number of -100k, a stark turnaround from the 273k seen in February. This could well see the unemployment rate nudge up from 3.5% to about 3.7%, however this completely disguises the fact that the real unemployment rate is already much higher than that, due to the jobless claims data lag of the last two weeks.

In the past two weeks 10m Americans have applied for jobless claims, with another 6.6m yesterday, and with another two weeks of claims left to go into the April numbers, the unemployment rate could well explode through 10% to the mid-teens by the same time next month.

While the spread of the coronavirus has by and large caught policymakers off guard, the responses since then have seen what was a medical emergency start to morph into a financial emergency, as global unemployment sky rockets, and the price of financial assets plunges.

In the last few weeks, we’ve seen measures of unemployment surge higher, across the world, in Canada and Norway, Spain yesterday, as well as 1m new claims for universal credit in the UK over the past two weeks.

This will have an absolutely toxic effect on consumer spending in the weeks and months ahead, as consumers prioritise essential spending over discretionary.

US markets look set to open lower after yesterday’s oil induced move higher, with today’s slightly weaker tone, weighing on sentiment, notwithstanding some caution ahead of today’s ISM services numbers, and March payrolls report.

Earnings in focus today include the Q4 numbers for Constellation Brands. Since the coronavirus outbreak there has been anecdotal evidence that sales of one of Constellation Brands best-selling products has seen its sales slump.

We’ve seen reports that consumers in some parts of the world have stopped buying and drinking the company’s Corona beer, due to it having the same name as the ubiquitous virus.

While Corona isn’t the only brand the company produces, it does have the highest profile, with some reports that liquor stores can’t give it away. At the end of February, the company denied that the unfortunate name association had hurt sales, however it is hard to ignore that we could see some slowdown in sales, and this is reflected in the fall in the share prices which are at 5-year lows.

Expectations are for Q4 earnings of $1.64c a share. When this is over the company may well have to consider doing a rebranding of one its highest profile brands.   

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