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Weekly World Markets Review (22-26 June 2020)

posted onJune 28, 2020

World markets retreated after the International Monetary Fund (IMF) downgraded its forecast. The Washington-based institution said the global recession will be deeper, and the recovery slower. Fresh US-Europe trade tensions also depressed sentiment. Virus headlines weighed on stocks. Gold climbed and a oil prices dropped. Meanwhile, a new report by Moody’ s said the coronavirus will push debt levels in the world’s richest nations up by almost 20 percentage points on average this year. 

Stocks gave back the previous week’s gains as trade tensions resurfaced between the US and both Canada and the European Union. IMF's new growth projections also dampened some of the market optimism for a speedy economic recovery and quick rebound in corporate earnings. Bank stocks were particularly volatile.Enthusiasm over some positive economic data was offset. Services sector activity hit 4-month high in June while durable goods rose 15.8% MoM in May. IHS Markit’s gauges of both current service and manufacturing sector activity also surprised modestly on the upside.

In stimulus news, President Donald Trump told a reporter that another “very generous” stimulus bill would be coming "over the next couple of weeks." White House Economic Advisor Larry Kudlow later told Fox News that the plan might include another round of direct payments to individuals.The Federal Reserve eased banking regulations and said large banks could maintain dividends in the third quarter but they cannot increase them or launch share buybacks. 

Japanese stocks fell this week although restriction on people’s mobility and businesses was eased further from June 19 and activity rose. However, equities recovered on Friday following the positive
cues overnight from Wall Street. On the data front, Japan's private sector's downturn eased in June,
industry activity dropped 6.4% in April and  June inflation data out of Tokyo continued to show price increases are subdued. In central bank related news, the Bank of Japan said was hopeful of 6.4% GDP rise and 2% inflation. The BoJ also said it offers $78 billion to firms hurt by pandemic in first phase of loan programme.

Chinese stocks rose in a a holiday shortened week as markets in Shanghai were closed on Friday for Dragon Boat Festival. The People’s Bank of China (PBoC) kept interest rates unchanged for the second month at its latest policy meeting. The government said it would extend the exemption on social insurance fees for firms hit by the pandemic until the end of this year and that it would increase the number of sectors open to foreign investment starting July 23.

Meanwhile, more Chinese firms look for secondary Hong Kong listing, the Nikkei Asian Review reported citing sources with knowledge of the plans. Fitch Ratings said that China's pledge to relieve the debt burden owed to it by some emerging market economies could ease near-term liquidity pressures in nations struggling with the fallout from the Covid-19.

The Australian sharemarket kicked off the week gaining just 0.03% following North and South American markets' mixed performance on Friday. Aussie stocks hit their lowest level in more than a week on Thursday, following poor leads from Wall Street.  On Friday, the Australian share market recovered from Thursday’s losses lifted by the gains in the US markets. 

In a very volatile week, equity markets were torn between generally upbeat economic data and worries due to a flare-up in trade tensions between the U.S. and Europe.PMIs jumped throughout the region while consumer and business confidence measures in Germany and France improved, providing signs that the coronavirus-induced slump in the eurozone may be bottoming out. However, investors focused instead on the renewed threat by the US to impose tariffs.

Trade tensions rise

The U.S. threatened to hit $3.1bn of European products  with additional tariffs, a move Brussels criticized as  "very damaging" as “it creates uncertainty for companies and inflicts unnecessary
economic damage on both sides of the Atlantic." Earlier in the week, the president of the EU's Chamber of Commerce in China Joerg Wuttke said that it is likely that the Comprehensive Agreement on Investment which has been in the works since 2014 won't be reached in 2020. "The
fact that both parties didn't feel like reporting what has been agreed upon is an indicator that there was very little to agree upon," Wuttke stated, adding that he doesn't "see any conclusion this year."

Central banks talks

In central bank related news, Bank of England (BoE) Governor Andrew Bailey said on Monday that the central bank should start to sell government bonds back to the market before raising interest rates on a sustained basis, a major shift in its asset purchase policy. Bank of Spain Governor Pablo Hernandez de Cos  on Tuesday said the country'seconomy needs urgent structural reforms and he sees late 2020recovery.  The Governing Council of the European Central Bank (ECB) decided on Thursday to set up a new backstop facility, called the Eurosystem repo facility for central banks (EUREP),  to provide euro liquidity to non-euro area central banks. 

Market sentiment is likely to continue to swing from optimism to anxiety. Debt levels of states, banks, businesses and households are on an unsustainable path, they have been exacerbated by lockdowns and the only sure thing is that they cannot remain as they are without putting the world PEACE at risk.

Read our full world markets weekly report for free here. 10 pages covering geopolitics, finance, business, investing, trading, and more. 

What's ahead next week: 

Chicago PMI and Consumer Confidence (June)
ISM Manufacturing Index (June) 
Congressional testimony from Fed Chairman Jerome Powell and Treasury Secretary Steven Mnuchin
Minutes from the Fed's June monetary policy meeting, 
Nonfarm payroll report (June)

Trade figures (May)

Preliminary industrial production data and retail sales (May)
Tankan Large Manufacturing Index (Q2)

Consumer price inflation (June)
Economic and business activity sentiment (June) 

Retail sales (May) 
Unemployment figures (June)

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