Graeme Wearden and Jasper Jolly 

Oasis and Warehouse fall into administration; US economy suffers in lockdown – as it happened

America’s manufacturers and retailers are hit hard by coronavirus shutdown, as retail sales also suffer record slump
  
  

Oasis and Warehouse have closed their shops during the pandemic lockdown.
Oasis and Warehouse have closed their shops during the pandemic lockdown. Photograph: Kumar Sriskandan/Alamy Stock Photo

Closing summary: US economy slumping and Oasis and Warehouse enter administration

Dire economic data appear to be filtering through to stock market investors, with Wall Street and European indices taking a tumble on Wednesday.

The FTSE 100 lost 3.3%. The S&P 500 benchmark of large US companies had lost 2.2% at the time of writing.

US factory output tumbled to historically low levels, while retail sales slumped. In the UK, the collapse of Oasis and Warehouse into administration was testament to the struggles that the latter sector faces around the world.

Here are some of the most important developments from today:

You can continue to follow live coverage of the coronavirus pandemic around the world:

In the UK, England’s chief medical officer, Chris Whitty, says he thinks the death toll is probably reaching its peak.

In the US, House speaker Nancy Pelosi says President Trump’s decision to withhold funding to the World Health Organisation will be challenged.

In our global coverage, the number of confirmed global cases has passed 2m.

Thank you as ever for reading, and join us tomorrow for more coverage of business, economics and financial markets. JJ

The payment of dividends and big salaries has been a big bone of contention during the coronavirus crisis. Now the Financial Times is reporting (£) that those companies that take bailouts will be banned from doing so.

It says that there will be restrictions on dividends, share buybacks and bonus payments, citing “an official document”. It adds:

Bailed-out businesses are also forbidden to take “excessive risks” or even engage in “aggressive commercial expansion”, says a document setting out amendments to the recent relaxation of state aid rules.

Some reactions to the Oasis and Warehouse administrations are coming in.

Remember, the companies could still be bought, although that will be cold comfort for the 202 workers made redundant today.

Joel Kempson, personal finance expert at money.co.uk, said

Oasis and Warehouse have battled on throughout difficult high street trading conditions, even posting record sales figures in 2019, but with the closure of stores and added strain of Covid-19 the administrators have been called in.

Debenhams and Laura Ashley have already suffered administrations, adding to a picture of a retail sector under severe pressure, according to Nigel Frith, an analyst at AskTraders. He said:

The rate that retail stores are plummeting into administration is alarming.

Looking forward, more high street brands will probably fail over the coming days, weeks and even months after Covid-19. Question is, who’s next?

European markets have closed down even further, amid global worries about the extent of coronavirus recessions.

The FTSE 100 lost 3.3% to hit 5,597.65 points. That leaves it back where it was a week ago.

The Dax in Germany lost 3.9% and France’s Cac 40 fell by 3.8%.

Across the Atlantic the S&P 500 has lost 2.7% and the Dow Jones industrial average has lost 2.6% on a tricky day for equity market investors.

The retailers’ brands will continue to trade online, says the Guardian’s retail correspondent, Sarah Butler.

About 2,300 jobs are at risk in total across the company. Only about 300 of those staff will still be working during the lockdown.

Fashion retailers Oasis and Warehouse collapse into adminstration

Oasis and Warehouse have been put into administration.

The fashion retailers will furlough 1,801 employees, while 202 will be made redundant, according to a statement from Deloitte, the administrators.

Until the coronavirus lockdown, the retailers operated 90 standalone stores and more than 400 concessions in department stores including Debenhams and House of Fraser.

More to come as we have it. In the meantime, here is the context:

Some interesting points coming from parliament’s Treasury committee, which is hearing from Bank of England deputy governor Sam Woods via video link.

On the story earlier about the slow takeup of the government’s coronavirus loan schemes, Woods said that bank operational bottlenecks are the issue rather than any concerns about whether they have the capital to make hundreds of millions of pounds of new loans.

Woods is head of the Bank of England’s banking regulator, the Prudential Regulation Authority.

But the banks are very aware of past misconduct costs, despite some mistakes, he said.

The biggest risk to banks is the unknown length of the lockdowns, while the prospect of corporate defaults is also worrying he said. British banks are not capitalised to withstand a multi-year shutdown of the economy.

You can watch the session here (if you are a glutton for video calls filled with speakers with no conception of angles).

G20 finance ministers agree to suspend poorer nations' debt payments

G20 finance ministers have agreed to suspend poorer countries’ debt payments from 1 May until the end of the year, as they prepare for increased spending on healthcare systems during the coronavirus pandemic.

That’s according to a communiqué just issued.

From Reuters:

The decision to suspend both principal repayments and interest payments affects all the International Development Association (IDA) countries that are currently on debt service to the International Monetary Fund and the World Bank, and all least developed countries as defined by the United Nations that are currently on any debt service to the IMF and the World Bank.

The G20 said that it will be time-bound (so not quite a jubilee) and it also said that private creditors should match the terms. From the communiqué:

We support a time-bound suspension of debt service payments for the poorestcountries that request forbearance. We agreed on a coordinated approach with a common term sheet providing the key features for this debt service suspension initiative, which is also agreed by the Paris Club.[...]

We call on private creditors, working through the Institute of International Finance, to participate in the initiative on comparable terms.

There has been a bit of an acceleration in the selloff on the FTSE 100 as we approach the close of trading.

The FTSE 100 is down by 3.1%, with only seven stocks gaining ground. The mid-cap FTSE 250 has lost 4.3%.

The declines in London are matched elsewhere in Europe. Germany’s Dax has lost 3.6% and France’s Cac 40 has fallen by 3.5%.

Ryanair chief executive Michael O’Leary thinks global flight volumes will recover quickly once coronavirus lockdowns ease - but with lower prices.

The airline industry has suffered a massive hit as travel has all but stopped. The global industry body estimates the sector will lose $314bn (£249bn) in revenues this year.

According to Reuters, O’Leary said:

  • Ryanair is assuming no flights in April and May, before a gradual reopening in late June or July. By September the industry could be back near “normal” in a “best case” scenario.
  • There will be “massive price dumping” by airlines and hotels trying to attract customers once the crisis eases.

And on his own company:

  • Ryanair does not need loans. That is in contrast to rival easyJet, which has requested £600m from the UK government-backed scheme for big companies.
  • Ryanair has no plans to defer plane orders, again in contrast to easyJet, which has reached an agreement to do so with Airbus.
  • 2021 could be a bumper year for earnings.
  • He expects to take its next Boeing 737 Max plane by late 2020 or early 2021. 737 Max has been frozen after safety issues led to two fatal crashes, but O’Leary is hearing more optimistic noises from Boeing.

Aston Martin has extended its factory shutdowns by a week - perhaps unsurprisingly given the UK’s continued lockdown.

Carmakers are desperate to restart production (and have plans to do so in the coming days in some European countries) but reopening UK plants appears futher off.

Plants at Gaydon in Warwickshire, and St Athan in Wales will be closed until at least 27 April. The statement said:

Considering the current global and local position on suppliers and employees, the business is now extending this temporary suspension until Monday 27 April, subject to ongoing review of the changing circumstances.

The business will look to resume operations as soon as it is reasonable to do so.

If it looks bad in developed economies that will filter through to poorer nations around the world in the form of reduced demand. Here’s one stark example:

The Arcadia Group, which owns brands including Topshop, Dorothy Perkins and Miss Selfridge, is estimated to have cancelled in excess of £100m of existing clothing orders worldwide from suppliers in some of the world’s poorest countries as the global garment sector faces ruin, writes the Guardian’s Annie Kelly.

According to data from the Bangladesh Garments and Manufacturing Association (BGMEA), the Arcadia Group has cancelled £9m of orders in Bangladesh alone.

The Worker Rights Consortium (WRC), a labour rights group based in the US, says it believes that the Arcadia Group will have cancelled “well in excess of £100m” of orders across its global supply chains. It currently sources only 5% of its clothing orders from Bangaldeshi suppliers.

You can read the full report here:

And it’s Jasper Jolly taking over from Graeme Wearden through the European market close.

Record slump in US housebuilder confidence

More gloom! US homebuilder confidence has suffered its biggest one-month dive in its history.

That’s a triple-dose of grim American economic data.

CNBC has the details:

  • A crucial indicator of homebuilder sentiment suffered its biggest monthly drop in the index’s history from March to April, as the coronavirus pandemic hammered the American economy.
  • Builder confidence in the market for single-family homes plunged 42 points to a reading of 30 in April, the lowest point since June 2012, according to the latest National Association of Homebuilders/Wells Fargo Housing Market Index.
  • Anything above 50 is considered positive. The last negative reading was in June 2014.

US industrial production suffers biggest fall since 1946

Newsflash: US industrial production has suffered its largest slump since the aftermath of the second world war.

American industrial output, which covered factories, mines and utility companies, declined by 5.4% month-on-month in March - as the Covid-19 shutdown hit output extremely hard.

Manufacturers suffered a particularly sharp slump -- down over 6%.

It’s a double-blow of bad news - just minutes after US retail sales suffered their biggest ever decline.

The US Federal Reserve, who compile the data, say it’s the worst reading since 1946!

Total industrial production fell 5.4 percent in March, as the COVID-19 (coronavirus disease 2019) pandemic led many factories to suspend operations late in the month. Manufacturing output fell 6.3 percent; most major industries posted decreases, with the largest decline registered by motor vehicles and parts.

The decreases for total industrial production and for manufacturing were their largest since January 1946 and February 1946, respectively.

Greg Daco of Oxford Economics predicts April’s figures will be even more dire:

Updated

Another sign that economic activity has plummeted:

Wall Street opens lower

Wall Street has opened sharply lower, as anxiety over the Covid-19 recession hits stocks.

The Dow Jones industrial average has fallen by 508 points, or 2.1%, to 23,441 in early trading. The S&P 500 is also down 2%.

The slump in the oil price, the record decline in US retail sales, and profit falls at Goldman Sachs and Citigroup this morning have all dampened the mood.

European markets are also still in the red, with the FTSE 100 currently off 150 points (or 2.6%) at 5639.

These are smaller losses than we’ve seen recently - and of course markets rallied strongly last week. But there’s a definite risk-off feeling today....

US retail sales suffer record slump

America’s shopping malls and eateries have suffered their worst ever decline in sales, as the US lockdown hits retailers.

Retail sales across the US slumped by 8.7% in March, even worst than expected. It’s the biggest monthly decline on record.

Clothing sales slumped by just over 50%, while furniture fell 27%, restaurant bills shrank by 26.5% and motor vehicle spending fell 25%.

Sporting goods, hobby, and book store sales dropped by 23%, but there was a 25% surge in food and drink spending as US consumers stocked up ready for confinement at home.

Government deficits are going to be huge this year, the IMF shows:

The IMF’s message to governments facing a massive recession is clear -- spend what you need to, but keep the receipts, so we can tackle the costs later.

The IMF is also concerned that the coronavirus pandemic could cause fresh waves of social unrest.

The new fiscal monitor warns governments that there could be a public backlash if they mishandle Covid-19 - especially as social unrest was already on the rise.

The Fund says:

In Ecuador, Haiti, and the Islamic Republic of Iran, protests started when the government announced an increase in fuel prices, while protests in France were related to reforms of the railway system and pensions, and planned fuel tax increases, among other factors.

In Sudan, a sharp increase in the price of bread and a shortage of fuel led to social unrest. In Lebanon, people took to the streets when the government announced the introduction of fees on internet-based calls, whereas in Chile, a small increase in public transport fares sparked social protests on much broader issues.

IMF: Covid-19 will send government borrowing soaring

Newsflash: The International Monetary Fund has warned that the Covid-19 crisis will drive government debt steeply higher world wide.

In its new fiscal monitor, just released, the IMF outlines how the stimulus packages - and the lost tax revenues - will push borrowing up.

It says:

The human cost of the pandemic has intensified at an alarming rate, and the impact on output and public finances is projected to be massive.

The IMF estimates that this will lift total government debt levels to 96.4% of the global economy, up from 83.3% in 2019, with total government deficits surging by almost 10% this year.

That’s more than in 2009, after the financial crisis (although that bill was spread over several years.

The report explains:

The COVID-19 pandemic is assumed to have a large negative effect on economic activity. Consequently, government revenues, including customs, will fall as activity and trade decline. The experience of the global financial crisis and past epidemics suggests that revenues fall even more sharply than output, as people and firms struggle to comply with their tax obligations.

Moreover, spending on health and support to people, firms, and sectors is being ramped up to mitigate the health and economic effects of COVID-19. Fiscal positions in 2020, therefore, are set to become significantly more expansionary across all three country groups (advanced economies, emerging market and middle-income economies, and low-income developing countries) compared with the fiscal outturns at the end of 2019.

Overall fiscal deficits are expected to widen more in advanced economies, partly reflecting a more pronounced projected economic contraction in advanced economies than in emerging market and developing economies.

Global debt is estimated to increase by 13 percentage points to reach 96.4 percent of GDP in 2020.

Updated

CEOs warned against bumper pay packets amid Covid-19 crisis

One of the world’s biggest investors has threatened to vote against dividend payments and excessive pay for executives in light of the coronavirus outbreak.

The head of Federated Hermes’s investment stewardship, Hans-Christoph Hirt, has written an open letter to chief executives warning it would “urge companies to strengthen their balance sheets and act in their long-term interest when making capital allocation decisions”.

He added that “management remuneration should be appropriately aligned with the experience of the wider workforce and society.”

Federated Hermes managed $575bn in assets at the end of 2019, including money from the old BT pension fund. The company has large holdings in major companies across the US and the UK.

While the investor will give leeway on extending the terms of board members, it will not let companies weaken their climate crisis commitments, Hirt said.

He added:

“The world will not be the same again – or at least, it should not be. We look forward to working with you on a more sustainable form of capitalism during this unprecedented time and post-crisis.”

How cheap is oil right now? Really rather cheap indeed, as this tweet shows.

Or for UK readers, a barrel of Brent crude (at $28.40, or £22) is slightly less than 18 bottles of Peroni Nastro Azzurro from Tesco. And rather less gluggable too.

Hot on Goldman Sachs’ heels come Citigroup, who have also reported that profits nearly halved last quarter.

Citi made $1.05 per share, down from $1.87.

The bank is also preparing for a surge in debt defaults, and has set aside nearly $5bn to cover bad loans.

More expert reaction to the oil slump - from Allianz’s chief economist Mohamed El-Erian:

And economics professor Paul Krugman:

Goldman Sachs profits half as loan provisions jump

Just in: Wall Street Goldman Sachs has put aside almost an extra billion dollars to cover losses from Covid-19, and the oil price slump.

Goldman has also reported that profits almost halved in the last quarter. Net earnings have come in at $1.12bn, down from $2.18bn in January-March 2019.

This pulled earnings per share down to $3.11, from $5.71 a year ago. Wall Street had expected $3.35 per share.

CEO David Solomon blames the coronavirus, while also applauding those in the frontline against the virus, saying:

“As the world grapples with this terrible pandemic, we are extremely grateful for the professionalism of the healthcare specialists and other front-line workers who are bearing the greatest burden in the fight against the virus.

We are in awe of their courage and are doing our part to help communities and small businesses suffering from the economic impact of the crisis. I am enormously proud of the determination and dedication of the people of Goldman Sachs, who continue to serve our clients despite high market volatility.

Our quarterly profitability was inevitably affected by the economic dislocation. As public policy measures to stem the pandemic take root, I am firmly convinced that our firm will emerge well-positioned to help our clients and communities recover.”

Goldman has put aside $927m to cover credit losses in the last quarter -- a year ago, it only allocated $224m.

The increase compared with the first quarter of 2019 was primarily due to significantly higher provisions related to corporate loans as a result of continued pressure in the energy sector and the impact of COVID-19 on the broader economic environment.

After a rather gloomy morning, here’s the situation.

  • FTSE 100: down 129 points, or 2.2% at 5562 (its lowest level since last Wednesday).
  • Brent crude: down nearly 4% at $28.51 per barrel (a two-week low)
  • US crude: down 1.3% at $19.83 (having hit an 18-year low this morning)

Neil Mackinnon, VTB Capital’s global macro strategist, says investors are pricing in a deeper Covid-19 recessio:

“For 2021, the IMF looks for a V-shaped recovery. The financial markets, and especially government bond markets, are more circumspect. Bond yields in the major markets are at secular lows, and longer-term inflation expectations remain subdued. S&P earnings and profits expectations are being revised downward in the face of global demand weakness.

For what it is worth, we are skeptical of the V-shaped recovery hypothesis, simply because ending the lockdowns in the various countries will likely be a staggered process.”

Full story: weak demand drags oil down

Will the big Footsie dividend payers still deliver?

The Covid-19 crisis has forced packaging firm Smurfit Kappa and plumbing and heating supplier Ferguson to scrap their dividend payments today.

That means nearly a third of the FTSE 100 members have cut, suspended or cancelled shareholder payments this year, reports Russ Mould, investment director at AJ Bell. That includes the banks (under pressure from regulators), travel firms and airlines

But many of the big dividend payers, including the oil giants, haven’t pulled the plug yet.

The top 20 dividend-paying companies are on track to hand over £54bn this year -- giving the FTSE 100 a yield of 3.4%. Small savers, and large investors, will be hoping they still deliver -- although the longer the lockdown lasts, the trickier that becomes....

Mould explains:

“Of the top 10 payers by actual size of distribution, Shell and BP have both offered trading statements which have emphasised how cuts to capital investment, cost reductions, asset disposals and fresh debt would provide ample liquidity. Shell suspended its buyback programme but neither firm even mentioned the dividends, to suggest Shell and BP seem determined to defend their planned payments.

“The only other one of the top 10 to offer a firm statement is Diageo which has confirmed payment of its interim dividend for the six months to December 2019.

“Further down, Legal & General has brushed aside entreaties from the Prudential Regulatory Authority and declared its intention to pay a final dividend for 2019. Tesco has declared a final dividend and stuck to its plan to pay a special dividend in the second half once the sale of its Thai and Malaysians go through. SSE has repeated its goal of an 80p-per-share distribution, although management did say it would continue to monitor the situation.

“In addition, Prudential is now longer subject to PRA rules and has the Hong Kong Insurance Authority as its regulator, and the hullaballoo in Asia over HSBC’s move to pass on its final 2019 dividend means the insurer will be popular over there if it holds its ground and makes its payments on time.

The opposition Labour Party is not impressed by today’s Covid-19 rescue loan figures:

Ed Miliband, the new Shadow Business Secretary, is alarmed that only 6,020 firms have received support:

“These figures show that the CBIL scheme is simply not working well enough. We need change now. The Chancellor must move to a 100% guarantee of loans for smaller businesses as other countries have done. In this economic emergency, it is the right thing to do.

In the coming days, businesses are facing critical decisions about their future.

While a government loan would be welcome, many businesses would also like to claim on their insurance to cover losses from the lockdown.

But there’s bad news -- according to the Financial Conduct Authority, few firms are actually protected from this crisis.

And it doesn’t plan to force insurers to cough up unless policies actually cover pandemics.

Back in the UK, British banks have issued a total of 6,020 loans worth £1.1bn through the much-criticised coronavirus business interruption loan scheme.

New figures show the banks have doubled the number of approved applications in just the last week, after a slow start.

The total amount lent to SMEs over the past week also grew by 150% or by £700m.

UK Finance, which released the figures, said around 21% of the 28,460 formal applications have now been approved. However, there have reportedly been 300,000 informal inquiries about the scheme, as small and medium sized businesses scramble for financial support during the lockdown.

UK Finance has not issued any breakdown by bank, to show which lenders may be making greater progress is distributing up to £330bn worth of government backed loans under the CBILS scheme. Royal Bank of Scotland, which is still 62% owned by the taxpayer, has reportedly handed out around 70% of the CBILs loans so far.

The CBILs scheme has been widely criticised, with banks having originally asked business owners for personal guarantees (which was later banned) and lenders having offered most businesses commercial loans at high rates, rather than the 12-month interest-free, government-backed CBILS loans.

The Treasury has since changed its criteria in order to get money out more quickly to businesses who may otherwise fail to survive the Covid-19 lockdown.

Updated

Here’s more reaction to the slump in oil prices.

Economist Daniel McLaughlin says the markets are anticipating an even steeper recession (so even less demand for crude):

Hedge fund manager Keith McCullough says ‘economic gravity’ is pulling oil lower:

Here’s Bloomberg’s Javier Blas:

Crumbs. The IEA also fears that oil producers could run out of places to store oil by this summer, unless demand picks up.

With demand expected to plunge by 9 million barrels per day this year (or 9%), the Agency suspects that tanks, ships and pipes could become stuffed with unwanted crude.

It says:

“Never before has the oil industry come this close to testing its logistics capacity to the limit.”

Ouch! International Energy Agency (IEA) executive director Fatih Birol has predicted that April could be the worst ever experienced by the oil industry.

Briefing reporters about the IEA’s new forecasts, Birol explained:

“In a few years’ time, when we look back on 2020 we may well see that it was the worst year in the history of global oil markets.

“During that terrible year, the second quarter may well have been the worst of the lot. During that quarter, April may well have been the worst month - it may go down as Black April in the history of the oil industry.”

(thanks to Reuters for the quote)

Shares are continuing to dip on London, with the FTSE 100 down 2% and the smaller FTSE 250 index shedding 4% today.

There are some risers, though - online supermarket chain Ocado are up 4%, amid strong demand for grocery deliveries.

Insurance group Hastings have gained 3.8%, after reporting a drop in claims for motor accidents recently (as Britons are under firm instruction to stay at home).

The slump in oil prices is potentially disastrous news for America’s shale oil industry.

Oils rigs across America’s energy belt have fallen silent in recent weeks as crude demand has troughed, leading to heavy job losses. Many of those shale producers are deep in debt, and could default on those loans unless prices rises.

That’s why Donald Trump was pushing Opec, and Moscow, to end their price war.

Analyst Naeem Aslam of Avatrade explains:

The fact is, if oil prices fail to go back above the $30 mark, the U.S. shale oil industry is going to find it tough to survive.

Donald Trump was proud that he forged a deal between Saudi Arabia and Russia, however, the president’s only goal was to save the U.S. oil industry and its jobs. The Saudis and Russians are done with their production cuts, and it is highly unlikely that we will hear any more from them, even if prices stay at the current level.

OPEC+ has always wanted the U.S. shale oil industry to make organic cuts, but oil production cuts from the U.S. shale oil industry are based on CAPEX cuts from energy companies. This type of production cut isn’t enough to aid the oil demand shock. Given the current climate, we need an organic oil production cut.

US crude hits 18-year low

Newsflash: Oil has hit a new 18-year low.

The IEA’s warning that global demand will fall to its lowest since 1995 in April has added to the gloom in the market - sending US crude reeling to just $19.20.

That’s its lowest level since 2002, and show Opec’s attempt to prop the price up is failing.

IEA chief Fatih Birol has tweeted that the latest forecasts for demand are “staggering”.

He’s also warned that the volatility in the oil markets are dangerous to the global economy, at the time when “we can least afford it”.

Despite the Covid-19 lockdown, the UK government has blown the whistle for construction of the HS2 rail link to begin:

European markets fall amid coronavirus recession worries

European markets are falling deeper into the red this morning, as coronavirus recession fears swirl.

The FTSE 100 is now down 90 points, or 1.5%, at around 5,700 points - with similar losses in other markets.

That only takes the index back to last Thursday’s levels -- at the end of its best week in over a decade.

Oil is still sinking too - with Brent crude now down 4% at $28.36 per barrel (on top of Tuesday’s 7% slide).

Such sharp moves show that volatility is still very high, especially with Britain’s fiscal watchdog suggesting the UK economy could shrink by a third this quarter.

Neil Wilson of Markets.com says there is a significant difference of opinion in the markets. Some hope the global economy will bounce back from Covid-19, but others expect a long, bumpy, haul.

The OBR says the UK economy could fall by 35% in the second quarter. Brutal for sure, but it also expects a very sharp bounce back. This puts it in the V-shaped recovery camp, which is an ever-decreasing circle. Charles Evans, the Chicago Fed president, said yesterday the US is in for a very sharp but hopefully short downturn.

Money managers are more pessimistic. According to Bank of America’s latest Global Fund Manager Survey, just 15% see a V-shaped recovery. Over half (52%) see a U-shaped recovery, where the long line along the bottom stretches on for some time, perhaps years. A fifth (22%) see a W-shaped recovery – possibly sparked by a sharp bounce back and second or third wave of infections – and 7% see the dreaded L – a long depression like the 1930s and no real recovery. The biggest tail risk is a second wave of infections, which makes the speed at which you reopen economies key. My bet, for what it’s worth, is WWW.

Oil demand to slump to 1995 levels in April

Newsflash: Global oil demand is expected to fall by a record amount this year -- according to industry experts.

The International Energy Agency has predicted that demand will slump by 29 million barrels per day in April -- to levels last seen in 1995 -- as the Covid-19 lockdown hits demand extremely hard.

It also warned that output cuts (such as last week’s Opec+ deal to remove 19.5m bpd) won’t offset this slump in demand.

For 2020 as a whole, the IEA predicts demand will slump by 9.3m barrels per day. It also gives producers some credit for (finally) reaching last weekend’s agreement to cut output.

“By lowering the peak of the supply overhang and flattening the curve of the build-up in stocks, they help a complex system absorb the worst of this crisis.

“There is no feasible agreement that could cut supply by enough to offset such near-term demand losses. However, the past week’s achievements are a solid start.”

This chart shows how Brent crude prices have been weakening for several days, back towards the 18-year lows hit last month.

Leading City fund manager Jupiter has been buffeted by this year’s market slump.

Jupiter has reported that its total assets under management [AUM] has fallen to £34.99bn, down from £42.83bn at the end of 2019.

It told the City that this is a relatively good performance:

So far this year, in common with the asset management industry as a whole, Jupiter has faced challenging market conditions, largely brought about by the global coronavirus (Covid-19) pandemic, which has had a significant adverse impact on the economy, global financial markets including asset values and, consequently, on our AUM.

During this volatile period, which has seen most asset classes experience significant falls in value, Jupiter’s relative investment performance has strengthened, with 80% of AUM above median over three years, 75% in the top quartile.

Shares in oil producers are dropping, with Royal Dutch Shell down 3.4% and BP off 2%.

But oil consumers are also having a bad morning. Budget airline easyJet is the top faller on the FTSE 100, down 7%, with IAG (which owns British Airways) down 6%).

Oil’s latest slump shows that concerns over “virus-driven demand destruction” are overshadowing the historic agreement between Opec and non-Opec members to cut supply, says Bloomberg.

Daniel Hynes, an analyst at Australia & New Zealand Banking Group, explains:

“This is a demand driven market at the moment and clearly lockdown measures across most of the world are keeping that under pressure.

“We expect to see prices remain relatively volatile.”

Introduction: Oil hit by Great Lockdown fears

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Anxiety over the Great Lockdown recession of 2020 is haunting markets, even though stocks have staged quite a recovery in recent weeks.

Oil is under pressure again this morning, after slumping by over 7% last night to two-week lows.

Brent crude has dropped by another 1.5% in early London trading to just $29.18 per barrel, and US crude is heading back towards $20 per barrel. That means they’ve lost more than half their value this year.

Traders remain sceptical that last weekend’s Opec++ agreement to cut 10% of world oil supply will spark live into a market hit hard by the covid- 19 pandemic.

And who can blame them, with the International Monetary Fund predicting the deepest recession since the Great Depression, with painful slumps across the globe.

China’s policymakers have acted overnight, by cutting a key medium-term interest rate to record lows and paving the way for a similar reduction in benchmark loan rates.

But that didn’t stop the CSI 300 index ending the day in the red, down 0.6%.

European stocks are also dipping in early trading, with the Stoxx 600 down 0.3%. Britain’s FTSE 100 has lost 17 points to 5774, on top of Tuesday’s 51 point drop (-0.9%).

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says investors are turning gloomier as the Covid-19 recession strikes.

News on how long and how deep the coronavirus-led recession should continue hitting the global headlines and sour the investor mood. The IMF warned yesterday that the economic recession which will follow the ‘Great Lockdown’ will be the steepest in a century, while the British Office for Budget Responsibility (OBR) said the UK’s economy could contract as much as 35% in the second quarter of this year, the worst since 1956. Leading banks also expect over 30% decline in growth in developed economies in the second quarter and the numbers are perhaps not an exaggeration.

Under these circumstances, and with looming first quarter corporate earnings, recent gains we have seen in equity markets could be the calm before the storm. Investors could close their positions and run to safety in the blink of an eye. This explains why safe haven assets are curiously bid despite solid gains across global equities.

In recent weeks, the markets had been cheered by hopes that the lockdowns could soon ease and people would return to the office, the shop and even the pub. But gradually, more investors are realising that the coronavirus will cause long-term economic damage too.

As Marketwatch puts it:

“Most of the analysts are asking — ‘When will the economies return back to work?’ — which we believe is the wrong question,” said Boris Schlossberg, managing director of BK Asset Management, in a Tuesday note.

“The much more relevant question is — ‘When will aggregate demand recover to pre-virus levels?’ That is a much more difficult dilemma to assess given the massive damage done to consumer balance sheets.”

Also coming up today

The IMF is publishing its Fiscal Monitor later today, looking at the state of government finances - as Covid-19 drives borrowing sharply higher.

We’re also expecting to see a big drop in US retail sales, and a slump in factory output in the New York region.

The agenda

  • 1.30pm BST: International Monetary Fund publishes its Fiscal Monitor
  • 1.30pm BST: US retail sales for March - expected to tumble by 8%
  • 1.30pm BST: Empire survey of New York state manufacturing in April - expected to fall to -32.5 from-21.5
  • 3pm BST: Bank of Canada interest rate decision
  • 3.30pm BST: US weekly oil inventories
 

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