Global Markets Update Monday, 17 August 2020

Posted on 17 Aug 2020

Investors started to shift from safe haven assets, such as sovereign debt and gold, into equities. Gold suffered its largest one-day sell-off for seven years while yields on government bonds rose: the 10-year Treasury yield has risen 15bps since the end of July while the German Bund yield touched its highest level since early June.

Goldman Sachs forecast that the FDA would approve a Covid-19 vaccine before the end of 2020. Russia said it had approved its vaccine for use beyond clinical trials. The country will start vaccinating its citizens in the autumn, making it the first country to do so – although the vaccine has only undergone limited stage 1 trials. China has also started to vaccinate its military, using a vaccine provided by CanSino Biologics.

Global Market Update

UK
The FTSE 100 advanced 1.0% over the week.
The UK imposed a 14-day quarantine on travellers from France and Netherlands.
UK GDP shrank 20.4% in the second quarter, the UK’s deepest recession on record. The data showed economic output rebounded by a stronger-than-expected 8.7% in June following an historic contraction during March, April and May.
The UK has lost almost 750,000 jobs since the start of lockdown. Data for July showed that the number of people claiming out-of-work benefits is rising as the furlough scheme tapers off. 
UK retail sales rose 3.2% in July compared to the same month in 2019, consolidating June’s robust gains. Food sales continued to be strong, while furniture and homeware sales also did well. Online shopping remained "prominent" in July, accounting for 40% of sales. Computer sales also continued to soar as people who could worked from home.
A total of 445 companies listed on the London Stock Exchange cut, suspended or cancelled dividend payments in the first half of this year. 139 Aim companies adjusted dividends compared to 50 FTSE 100 companies and108 companies in the FTSE 250 index. Since the end of June, 25 companies have now rejoined the dividend list and recommenced payments.

US
The S&P 500 rose 0.7% over the week as it remained within touching distance of its all-time high.
Weekly jobless claims in the US fell below 1million for the first time since the start of the coronavirus outbreak.
Core US consumer prices rose by a stronger-than-expected 1.6% in July on a year-on-year basis.
The Trump administration said that it would ban US companies from dealing with the Chinese group’s popular WeChat messaging app. Donald Trump also signalled that he is considering taking action against more Chinese companies, including Alibaba. 
Joe Biden picked Kamala Harris as his running mate for the US presidential elections.  
As the second-quarter earnings season draws to a close, smaller US companies (in the Russell 2000 Index) have reported an aggregate loss of $1.1bn, compared to profits of almost $18bn a year earlier, according to FactSet. Meanwhile, companies within the benchmark S&P 500 index have posted a 34% aggregate drop in earnings to $233bn.

Europe 
The FTSEurofirst 300 gained 1.2% over the week.
The EU labour market shrank by a record 5.5m in the second quarter. In percentage terms that equates to a 2.6% reduction in the number of people in work.
Eurozone industrial production rose 9.1% in June, although the rebound was weaker than forecast. Industrial production was still down more than 12.3% from a year ago, underlining how the region’s factories are struggling to recover fully from the pandemic.
The Sentix index of eurozone investor sentiment rose 4.8 points to -13.8 in August. This is the fourth consecutive month the index has risen.
The Zew survey of German economic confidence rose by 12.5 points to 71.5 in August. This was the highest level of optimism since January 2004.
German factory orders jumped by a record 27.9% in June. 

Japan 
The Nikkei 225 rallied 4.3% over the week.
 
Pacific Basin
Chinese retail sales dropped a weaker-than-expected 1.1% year on year in July, marking the seventh straight month of declines. However, industrial output rose 4.8% in July compared with the same period last year, boosted by government spending on a wave of new infrastructure projects.
In New Zealand, the city of Auckland was put back into strict lockdown in response to the first locally acquired cases of Covid-19 in more than 100 days.

Emerging Markets
Turkey’s finance minister said the country’s economy is in danger of contracting this year and acknowledged that his previous forecast of a 5% expansion was no longer possible.

Bonds
The yield on the 10-year US Treasury bond closed the week at 0.69%.Long-dated yields moved higher following a record $26bn auction of 30-year bonds that saw muted demand with bonds selling on a yield of 1.4%, up from 1.33% at the previous auction.
The yield on the 10-year German Bund ended at -0.42%.

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