July Markets in Brief

As much of the West continues to tentatively emerge from months of lockdown measures, June has been an altogether more positive month when it comes to economic news. All the markets we report on rose during the month.

The global Black Lives Matter movement and the new Hong Kong security law usurped Covid-19’s position as the headline item on global media outlets for much of June, a sign that perhaps we are beginning to emerge into a ‘new normal’.

However, recent resurgences of Covid-19 in California, Texas and Florida demonstrate just how tentative this emergence must be.  Meanwhile, the virus continues to ravage much of the developing world, with a recent surge of cases in South Africa and other African countries.

UK

Unsurprisingly, most of the bad news came from the retail sector. Figures published in early June saw sales fall by 5.9%, in spite of the fact that many shops had moved online. Estimates suggest that around £2.15bn of commercial rent was unpaid for the quarter ending in June. Shirtmaker TM Lewin was the high street’s latest casualty, as it moved all sales online at the cost of 700 jobs.

However, there was positive news aplenty. Speaking on 30th June, Bank of England economist Andy Haldane announced that the UK economy was still on course for a quick, V-shaped recovery coming “sooner and faster” than expected. 

On the back of this, at the end of June, Boris Johnson announced his ‘New Deal’ worth £5bn, evoking President Roosevelt’s New Deal of the 1930s, a massive infrastructure spending designed to drag the US out of the Great Depression. Roosevelt’s deal was worth around 40% of the US GDP in 1929. By comparison, £5bn amounts to a more modest 0.2% of current UK GDP – not quite on the same scale.  

The FTSE100 rose by a modest 2% during the months closing at 6,170. And the pound was unchanged against the dollar, ending June at $1.2388.

Europe

All was relatively quiet on the continent from a news point of view. The European Central Bank (ECB) raised no alarm bells when it cut its growth forecast for the year. It now expects the Eurozone economy to contract by 8.7% this year. 

The ECB was again active in boosting the Eurozone economies, ramping up its quantitative easing programme by €600bn to a whopping €1.35tn, extending the programme to June 2021, six months later than originally planned.

Unsurprisingly given the economic turmoil, there were significant job losses. Airbus announced that it planned to cut 15,000 jobs across Europe, only to be expected in a year that has been the worst on record for the aviation industry.

Both major European stock markets we report on had strong months. The German DAX index rose by 6% to 12,311 while the French stock market was up 5% to 4,936. 

US

The US’s unemployment crisis continued in June. Despite the good news that the US economy had added jobs in May as measures were released in many states, a further 1.5 million people had filed for unemployment benefit. There are now 44.1 million Americans claiming unemployment support.

Like every other major economy, the US is now officially in recession. This means the end of a decade-long period of economic expansion. The Fed duly reminded US banks to ‘stay prudent’ as it warned that they could suffer losses of up to $700bn if the pandemic led to a sustained economic crisis.

As in the UK, the American retail sector suffered. Gap posted a $923m loss for the three months to May, compared to a $227m profit for the same period last. 

Despite a spike in virus cases towards the end of the month, the Dow Jones ended the month up 2% at 25,813. From this month forward, we will also report on the more broadly based S&P index, which closed June at 3,100.

Far East

June ended with China passing the controversial Hong Kong security law. The law gives Beijing wide ranging powers over Hong Kong. The law states that anyone who conspires with foreigners to provoke “hatred” of the Chinese government could have committed a criminal offence. Many are worried that this law could make criticism of the Chinese government ilegal. 

The security law wasn’t the only point of controversy from China during the month. There was escalating tension between India and China and there were clashes in a Himalayan border region, with reports suggesting that up to 20 Indian troops had been killed. A rise in tensions between the world’s two most populous countries is a real cause for concern.

And if this wasn’t enough disruption, Australian Prime Minister Scott Morrison said that the country had been the victim of a “sophisticated state-based cyber hack” and many commentators quickly pointed the finger at China.

On a more positive note, the UK opened trade talks with Japan. The region’s markets seemed to respond as if improving bilateral relations were the trend across the region, when in reality the opposite was true.

China’s Shanghai Composite index rose 5% to 2,985 and the Hong Kong market did even better, climbing 6% to 24,427. The South Korean market was up 4% to 2,108 and Japan’s Nikkei Dow index gained 2% at 22,288. 

Emerging Markets

As we write this, on 2nd July, Vladimir Putin has just won a controversial vote to amend the constitution. Importantly, the vote means that Putin’s term limits have been reset, potentially allowing him to rule as president until 2036.  

The Indian economy seems to be rebounding rapidly in the wake of its lockdown which was released on 1st June. Figures suggest that goods movement is close to pre-lockdown levels.

On the other side of the Pacific, Brazil became the second country to reach 1 million cases of Covid-19, and experts have said that Brazil could ultimately become the country worst hit by the pandemic.

Both the Indian and Brazilian markets enjoyed excellent months. The Indian stock market rose 8% to end June at 34,916, while Brazil went one better, gaining 9% to 95,056. In contrast, Russia, the other major emerging market on which we report, had a subdued month and rose just eight points to 2,743. 

Whether you’ll be enjoying that first refreshing pint in a pub or having a much needed haircut, we hope that you have a great July. Please get in touch if you have any further questions around this commentary.

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