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Weekly World Markets Review (29/06-03/07/2020)

Equities jump but situation does not seem promising
posted onJuly 7, 2020
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Stocks climbed higher this week as encouraging data out key global economies continued to foster optimism of recovery. This week also marked the end of a very strong quarter for equities and the end of the first half of 2020.  US equities were up about 20% this quarter and emerging market equities were up 18%.

US
Equities put a positive finishing touch to Q2 

In a holiday-shortened week, stocks recorded solid gains, recovering all the ground lost in the previous week’s decline. A string of favourable data were released including the June payroll report (4.8 million jobs added), pending home sales which jumped over 44% in May, and the Conference Board’s Consumer Confidence Index. The unemployment rate fell to 11.1% in June from 13.3% in May. The ISM Manufacturing Purchasing Managers’ Index (PMI) climbed back above the “50” level. Minutes released on Wednesday from the U.S. Federal Reserve’s most recent policy meeting showed policymakers see need for 'highly accommodative' policy ahead. The week closed out the best quarters for the Dow Jones and S&P 500 since 1987 and 1998, respectively. Markets were closed Friday in advance of the Fourth of July holiday. The just-ended second quarter produced a great run. But probably Wall Street will be bracing for a volatile third quarter. 

world markets DJIA

ASIA/PACIFIC
Chinese upbeat data lifts most markets but not Japan 

In China, stocks in China rallied for the week as upbeat economic data helped spur fresh optimism about economic recovery. On Wednesday, the Caixin China General Manufacturing PMI rose to a six-month high reading of 51.2 in June from May’s 50.7. The a report released by the IHS Markit, came a day after China’s official manufacturing PMI rose to a three-month high of 50.9 in June, its fourth straight month of a reading above 50. Investor sentiment also brightened after preliminary figures from the China Association of Automobile Manufacturers showed that  car sales in China surged 11% in June from a year ago.

In Japan, after a strong rally in May and early June, the markets have seen stocks retreat in recent weeks. Weak economic data weighed on sentiment. Retail sales dropped 12.3% YoY in May,  industrial production fell 8.4% while Japanese automakers' May global sales plunged 38%. The unemployment rate stood at 2.9%. In the Bank of Japan June Tankan Survey, large manufacturers' sentiment fell to -34 from -8 in previous quarter, as a result of the pandemic. However, the Nikkei average rose 160.52 points, or 0.72 percent, to 22,306.48 on Friday after chief cabinet secretary said there was no need to reintroduce a state of emergency.

ASX200

In Australia, the benchmark S&P/ASX 200 index  extended gains for a fourth straight session on Friday and added 2.6% for the week on hopes that a recovery from the coronavirus-led economic downturn was underway. Australian May retail sales grew 16.9%, after a 17.7% drop in April. The Commonwealth Bank of Australia services Purchasing Managers' Index surged to 53.1 in June from 26.9 in May. The flash reading was 53.2. In investment news, Australia will spend nearly $1 billion over the next 10 years to boost its cyber security defences, Prime Minister Scott Morrison said on Tuesday. 

EUROPE
Trading higher to end best quarter since 2015

Most major stock markets in Europe saw gains, wrapping up their best quarterly performance in five years. Economic data indicated that the slump continued to ease in June as shops and businesses reopened. Both France and Germany saw record surges in consumer spending and retail sales while manufacturing PMIs for June were revised higher in Germany, France and Italy. Germany’s unemployment rate rose to 6.2% in June but the rise was slower than in the previous two months. Of note, Deutsche Boerse said on Monday it is looking at revising Dax membership rules following the Wirecard accounting scandal.  The embattled German firm filed for insolvency after disclosing a €1.9bn blackhole in its accounts.

FTSE100

In the UK, Manufacturing returned to expansion in June, with the flash PMI rising to 50.1 from 40.7. UK consumer sentiment improved at the end of June, according to the flash survey conducted by the market research group GfK. Bank of England Chief Economist Andy Haldane said  that real-time economic data showed the UK economy was already two months into a recovery and rebounding faster than expected. Although the  GDP fell 2.2% in Q1, house prices saw first annual fall since 2012 and rating agency S&P cut UK forecasts warning of 'perfect storm',  he indicated that he was
optimistic. “It is early days, but my reading of the evidence is so far, so V,” he said.

Equities jumped but markets will be bracing for a volatile third quarter as risks remain.
Unemployment soars, companies face bankruptcies, debt is ballooning, turmoil and hostilities spread all over the world. What kind of recovery can take place in a landscape full of conflicts, disasters and tensions? Is this a new type of medicine which has been discovered to keep the economy afloat while everything falls apart?

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The content of this review is for informational purposes only and should not be interpreted as specific investment advice.