Global equities advanced last week, bolstered by further stimulus measures from the US Federal Reserve.
But gains were limited by fears of a second wave of the coronavirus, as the global number of cases continued to rise.
- Investor confidence was boosted at the start of the week by the announcement that the US Federal Reserve would begin buying the corporate bonds of US companies, in a move to bolster the economy.
- Further support came in an announcement that the US administration is planning a $1tn infrastructure package, and news that researchers had discovered that a relatively low cost and abundantly supplied drug significantly reduces the death rate of patients who are seriously ill with the coronavirus.
- But as the week progressed confidence waned a little as the number of new coronavirus cases continued to rise, sparking fears that the recently eased lockdown measures will need to be reintroduced. After a run of more than 50 days without a new case, Beijing reported 80 cases, resulting in the Chinese authorities raising the Covid-19 response level and shutting schools. The US reported an alarming increase in the number of new cases each day, and a meat-packing plant in Germany was ordered to close after hundreds of employees tested positive.
- Despite the softening of the mood, the FTSE 100 index ended the week strongly by rising 1.1% on Friday, reflecting a more positive outlook for the UK economy following better than expected retail sales data, and helped by the Government’s announcement that it had downgraded the coronavirus alert level, raising hopes that a further easing of restrictions would soon follow. For the week, the UK market ended up more than 3%.
- This was mirrored in Europe where the region-wide Stoxx Europe index rose by 3.2%.
- Asia Pacific equities were also positive for the week despite heightened geopolitical tensions on the Korean Peninsula, and news of the death of 20 Indian soldiers following a clash with the Chinese military on the disputed border in the Himalayas.
- Sterling experienced its worst week in a month versus the US Dollar, falling to under $1.24. Investors were concerned about the prospects for the UK economy due to the damage caused by the pandemic and the prospect of less supportive measures from the Bank of England going forwards.
- Meanwhile gold continued its upward trajectory, rising by over 1% on Friday to $1,740 an ounce, with Goldman Sachs setting a 12-month target of $2,000 on the basis that demand for gold ‘tends to grow into the early stage of the economic recovery, driven by……..lower rates’.
- The Bank of England voted to inject a further £100bn into the UK economy through its QE programme; however, with financial conditions now more stable than at the perceived peak of the pandemic, members of the Monetary Policy Committee chose to slow the pace at which the money would be injected. The base rate was held at 0.1%.
- Data from the Office for National Statistics showed that UK government borrowing had exceeded GDP for the first time since 1963, as public sector net debt rose by £173.2bn y/y in May reflecting the extent of government spending as it seeks to protect the economy from the impacts of the Covid-19 pandemic.
- The Bank of Japan announced that it would pump ¥110tn into the economy via various support programmes, an increase from the previous estimate of ¥75tn.
- The number of American’s applying for first-time jobless benefits continued to slow with 1.51m new claims last week, although the pace of the decline was below analysts’ expectations.
- US retail sales surged 17.7% m/m in May, ahead of expectations of a 7.4% increase. Industrial production increased by 1.4% in May as factories began to reopen following the pandemic.
- In the UK, retail sales experienced a stronger than expected rebound, rising 12% m/m in May, although sales remain 13% lower than February’s level, prior to the introduction of lockdown measures.
- The number of workers on UK payroll dropped by over 600,000 between March and May.
- UK inflation fell to 0.5% in May from 0.8% the previous month, in line with expectations; the reading was the lowest level since June 2016 with most of the fall attributed to the fall in fuel prices.
- In the Eurozone, core CPI inflation was in line with expectations at 0.9% y/y.
- Chinese industrial production increased 4.4% y/y in May, below expectations of a 5% increase. Retail sales also disappointed, falling 2.8% y/y in May against expectations of a 2% decline.
- In Japan exports plummeted 28.3% y/y in May, and inflation disappointed holding at 0.1% in May, against expectations of a 0.2% rise.
The Week Ahead
|Monday||Europe consumer confidence|
|Tuesday||UK manufacturing PMI; UK services PMI; Europe manufacturing PMI; Europe services PMI; US manufacturing PMI; US services PMI; Japan manufacturing PMI; Japan services PMI |
|Friday||US PCE inflation|
|FTSE All Share
|Dow Jones Industrial
|FTSE Eurofirst 300
|MSCI Asia ex Jap $
|MSCI EM $
|MSCI World $
|UK Gov 10 yr
|US Gov 10 yr
|German Gov 10 yr
|Japan Gov 10 yr
|Brent Crude ($/bbl)
|$ per £
|€ per £
|¥ per $
Source: FE Analytics, Financial Times, JP Morgan Asset Management
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