Highlights from April 2020 – Strong rebound in stocks; Oil prices go negative (for a while); Central Banks announce big bond purchases

COVID-19 cases accelerating

The World Health Organization (WHO) declared COVID-19 a pandemic in March. New cases and fatalities are still growing exponentially. At the end of April there were 3.25 million cases (up from 860,000 at the end of March). The number of fatalities has grown exponentially too to 231,000 at the end of April (up from 42,000 at the end of March).

Strong rebound in stocks

Almost after every crash comes a resounding boom. And this time was no different, as stocks rebounded in April after the severe crash at the end of February and early March. The U.S. S&P 500 index led the recovery and was up 12.8% in April. Emerging markets were up about 9.3%, Europe (ex-UK) was up 6.4% and UK was up 5%.

 

Oil prices go negative

Wholesale oil (WTI crude) prices went negative hitting minus $37.63 a barrel for the first time ever on April 20th.

The root cause was COVID-19 bringing travel and economic activity to a halt, in turn causing a global drop in oil demand. Investors did not have the capacity to store the inventory causing a downward spiral to negative prices (they paid to get inventory off them). This time it was different.

 

Central Banks Action

The Federal Reserve said it is committed to buying unlimited government bonds. In addition, it will also buy investment grade (graded investment grade as of March 22, downgrades after that permitted) corporate bonds. These purchases will be made directly and via ETFs.

The Bank of England increased its bond purchase program by GBP 200 billion (USD 250 billion) to a total of GBP 650 billion (about USD 812 billion). It doubled its corporate bond buying program to at least GBP 20 billion (USD 25 billion). And finally, the Bank of England has agreed to temporarily lend the UK government “unlimited” money if needed (until the end of 2020), a measure last used during the 2008 financial crisis.

The European Central Bank (ECB) continued its quantitative easing programme focussing on countries impacted most by COVID-19 such as Italy and Spain.

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