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Weekly world markets review 01-05/06/2020

Stocks continue to climb even as threats multiply
posted onJune 8, 2020
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As economies emerge from unprecedented lockdowns, market participants looked past pandemic worries and widespread social unrest in the U.S. that spilled over to the world to focus instead on signs of economic recovery.  Positive economic news and confidence that massive stimulus packages from central banks and governments will stay in place for a while helped as well.

USA
Once again, U.S. equities rallied sharply, posting a third-straight week of gains, despite violent protests across the country which led to a historic curfew in Manhattan. Investors also put on the back burner simmering US-Sino trade tensions.

Encouraging economic releases and the continued flood of global stimulus contributed to the surge of optimism.  An unexpected rise in May U.S. employment stunned markets, while a host of manufacturing and services purchasing managers’ indices (PMIs) that showed May output improved from April's sharp downturn boosted confidence of a swift economic recovery among traders.

May was expected to be another bad month for workers, but the U.S. economy added 2.5 million jobs (m-o-m), the largest gain on record, compared to the Bloomberg forecast of a 7,500,000 drop.The unemployment rate defied analyst forecasts and, instead of increasing, declined to 13.3% from 14.7% in April, the Labour Department said.

Friday’s unexpected employment rebound in the jobs report fuelled a rally that left the S&P
500 up 43% from a recent low on March 23.

Even though economic activity will take more than a while to return to pre-crisis levels, investors celebrated signs of the beginning of an economic recovery.

DJIA

ASIA/PACIFIC
Asian stock markets mostly outperformed the US. Japanese stocks continued their upward trend finishing out the week in positive fashion. Japanese Prime Minister Shinzo Abe said on Monday
the government will present its proposal for the second supplementary budget that will contribute to its fresh 117 trillion yen ($1.1 trillion) stimulus to combat pandemic pain.

According to Abe, the main goal of this additional budget is to protect businesses and jobs but Finance Minister Taro Aso expects the unemployment rate to rise in May. Meanwhile, Japan’s tax revenue plunged 29.4% in April compared with a year earlier, finance ministry data showed. It was the biggest monthly year-on-year decline since August 2009.

In China, equity markets rose for the week with the FTSE Greater China index ending 5.6% higher. On the economic front, China’s service sector saw a steep increase in business activity in May. China Caixin services PMI rose to 55, hitting its highest level since late 2010.

Adding to optimism, the People's Bank of China (PBoC) issued guidelines for  other banks on how to support small and medium-sized firms that have been negatively affected by the coronavirus pandemic. The central bank also said  it will temporarily purchase loans made to small businesses from some local banks.

The Australian sharemarket made it five straight days - and six straight weeks - of gains in a rally driven by rising economic sentiment, as the country relaxed lockdown further and intensified economic recovery efforts.

The ASX 200 closed up 0.12% on Friday at 5998.7, the highest close since March 6.The RBA kept interest rates unchanged at a recoed low of 0.25% in line with expectations. Meanwhile, official figures show the economy shrank 0.3 per cent in the March  quarter. This makes it certain that Australia will suffer its first recession in 29 years.

HSI WORLD MARKETS

EUROPE
All major European stock markets rose this week, outperforming their peers, as risk sentiment in the Old Continent was more upbeat compared to the US and Asia. Following the steps of the Federal Reserve which has flooded the financial system with liquidity, the European Central Bank (ECB) ramped up its economic stimulus measures.

The ECB decided to increase its pandemic emergency purchase programme (PEPP) by EUR600 billion to a total of EUR 1.35 trillion,  pledging to expand the value of government bonds that it purchases and to extend the programme until at least June 2021.The increase was largest than analysts had been expecting and looks to weather what ECB President Christine Lagarde called an “unprecedented contraction” in the euro zone economy.

The ECB move added to the lengthy list of global monetary policy stimulus measures aimed at supporting an economic recovery from the severe pandemic disruption. The Frankfurt-based institution also kept its key interest rates unchanged.

DAX

Staying in Germany, Eurozone's largest economy, the ruling coalition agreed on a EUR 130 billion stimulus package for the country, that includes a VAT cut for the rest of this year, bigger-than-expected subsidies for electric vehicle purchases and funds for 5G mobile networks and railways.

Investors' concerns over the pandemic continued to subside as more good news on the economic data front hit the tape. Italy's factory activity contracted by less than expected in May while Spain's factories picked up pace as lockdown eased. UK services sector downturn eased in May while German services PMI was up to 32.6.

Global equities enjoyed another positive week largely thanks to economic reports which were less negative than feared.  There might be a few signs the worst is over, but it's a long, long road to recovery.

Read our full world markets weekly report for free here. Six pages covering geopolitics, finance, business, investing, trading, and more.

What’s ahead next week:

Australia
Consumer confidence (June)

Canada
Housing starts (May)
Capacity Utilization Rate (First Quarter)

China
Trade balance and inflation figures (May)

Eurozone
June investor confidence (June) and  industrial production (April), along with German trade data (April)

Japan
Labour earnings and core machine orders (April)

UK
Reads on industrial/manufacturing production and trade balance (April) along with Bank of England's inflation forecast for the next twelve months

US
Federal Reserve interest rate decision (June 10)
Wholesale inventories (April)
Consumer and Producer Price Indices (May)
Import and Export Price Indices (May)
Univ. of Michigan Consumer Sentiment Index (June)

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