Weekly Report

29.06.2020
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Global equities drifted between gains and losses in a generally downbeat week for investors.

Would the hoped-for economic recovery be nipped in the bud by the rise in the number of Covid-19 infections?

Markets

  • The week began in the same cautious mood as the previous week had ended, with stocks drifting gently between modest gains and losses. Limited economic data and the absence of any scheduled developments meant that markets struggled to identify any meaningful direction. Consequently, the rise in the number of coronavirus cases in the Americas, Europe and Asia became the primary focus.
  • The uncertainty increased the level of demand for gold, helping its price to rise on Monday by more than 1% to $1,762 an ounce, within $10 of the seven-year high hit in mid-May. The US dollar index, which has been weakening since late May, dipped by a further 0.6%.
  • Tuesday brought some encouraging economic data providing a temporary fillip to markets following several days when restrain seemed to reign. But markets quickly retreated when news came of a fresh round of outbreaks of Covid-19 and trade worries began to resurface. The US had recorded its biggest one-day jump in new infections in almost two months, and Washington threatened to apply new tariffs on $3.1bn of European products in retaliation for subsidies given to Airbus in a long-running dispute. The atmosphere between the US and Europe was further aggravated by reports that the EU was considering barring US travellers because of the continued spread of the virus in the US
  • This news was reflected in the FTSE All-World Index which fell by more than 2%, having risen by 1% the previous day, as the tug of war between the bulls and the bears continued.
  • The tensions between the US and Europe helped the region-wide Stoxx Europe 600 index to retreat by 2.8%, with Germany’s Xetra Dax index pulling back 3.4% and the UK’s FTSE 100 index falling by more than 3%. The falls were mirrored in the US when the markets opened, with the S&P 500 index closing 2.6% lower and the Nasdaq Composite index falling by more than 2%.
  • For the remainder of the week, the mood of investors remained downbeat over worsening coronavirus outbreaks and the latest employment data from the US. The US reported an accelerating rate of infections, with Texas, Florida and California of note given that these were the first states to ease the lockdown restrictions, and US jobless numbers came in at 1.48m which, although down from the previous week’s 1.54m, was worse than economists had been expecting. Consequently, US equity indices began to slide.
  • Although European markets also retreated, for the month to date the region-wide Stoxx Europe 600 index is up compared with the US’ S&P 500 index. This may reflect the view that any rebound in consumption in the US could be more gradual than in northern Europe, which appears to have a much better grip on the crisis.

Economics

  • News that the stand-off between Germany’s highest court and the ECB was set to be resolved helped Italian bond yields to fall, with the expectation that a truce would remove an obstacle to the ECB’s bond-buying programme helping such countries as Italy which has been hit hard by the pandemic.
  • PMI data in the UK and the Eurozone for June pointed to an improvement in business activity, beating analysts’ forecasts. This raised hopes that economies would bounce back reasonably strongly from the impact of the measures taken to control the pandemic. However, some economic commentators urged caution suggesting that the recovery could quickly run out of steam as unemployment rises, bankruptcies are declared, and orders fall after an initial surge.
  • The CBI’s UK industrial trends survey showed that factory output fell at its fastest pace on record in the three months to June, despite steps being made to ease the lockdown. Exports understandably fell to record levels as global trade plummeted in the face of the world’s lockdown restrictions.
  • UK consumer confidence improved in June evidenced by the IHS Markit UK Finance Index rising from 37.8 to 40.7, although this is still well below the 50 mark that separates optimism from pessimism.
  • Business activity in the UK is showing signs of recovery according to the IHS Markit’s flash composite managers’ PMI, which measures activity in the services sector and in manufacturing. The index rose to 47.6 in June from 30 in May but remains below 50 that separates growth from contraction; nevertheless, it was higher than economists’ forecasts of a rise to 41.
  • The IMF, in its latest forecast predicted that the UK would have to borrow more than £400 billion in two years as the recession caused by the pandemic impacts public finances. It estimates that the global economy will take a £12 trillion hit as gross domestic product falls 4.9% this year. Furthermore, although it expects a rebound in 2021, global GDP is estimated to be 6.5% smaller next year than had been forecast in January before the pandemic struck.
  • Some of Britain’s biggest high street chains have withheld their quarterly rental payment in a move that intensifies a stand-off with landlords.

The Week Ahead

MondayJapan retail sales
TuesdayEurozone flash CPI; Japan unemployment; Japan industrial production; UK consumer confidence; US consumer confidence
WednesdayChina PMI manufacturing; US ISM manufacturing
ThursdayEurozone unemployment
FridayChina PMI services; US non-farm payrolls; US unemployment; US average hourly earnings

Index Data

Stock Markets Jun 26 Jun 19 % Change
FTSE 100 6159 6293 -2.12%
FTSE All Share 3406 3487 -2.30%
S&P 500 3037 3127 -2.90%
Nasdaq Composite 9889 10003 -1.14%
Dow Jones Industrial 25222 26183 -3.67%
FTSE Eurofirst 300 1399 1426 -1.88%
Xetra Dax 12089 12331 -1.96%
Nikkei 22512 22479 0.15%
MSCI Asia ex Jap $ 652 650 0.30%
MSCI EM $ 1004 995 0.93%
MSCI World $ 2193 2216 -1.00%
Bond Yields Jun 26 Jun 19 Bps Change
UK Gov 10 yr 0.18 0.24 -6
US Gov 10 yr 0.64 0.68 -4
German Gov 10 yr -0.47 -0.46 -1
Japan Gov 10 yr 0.01 0.01 0
Commodities Jun 26 Jun 19 % Change
Brent Crude ($/bbl) 40.56 41.29 -1.77%
Gold ($/oz) 1756.55 1719.50 2.15%
Copper ($/lb) 2.67 2.62 1.91%
Currencies Jun 26 Jun 19 % Change
$ per £ 1.232 1.236 -0.32%
€ per £ 1.100 1.106 -0.54%
¥ per $ 107.335 106.975 0.34%

Source: FE Analytics, Financial Times, JP Morgan Asset Management

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