Weekly Market Update

20/07/2020

On Sunday 19th July, 726 new cases of Coronavirus were reported, along with 27 fatalities. The 7-day trend of new cases has risen slightly from last week, but with testing levels still rising rapidly, this isn’t a surprise; on Saturday 18th July, nearly 180,000 tests were administered.

Normalisation continues in the UK but economic data remains poor. During the week, May’s month-on-month GDP figures were announced as just 1.8% after April’s record fall. This compares to the consensus estimate of +5.5%. The country likely made a more robust recovery in June, and data collection has undoubtedly been more difficult than usual, but this does dampen hopes of a rapid recovery.

More positively, retail spending in shops roared back to life in June as evidence of pent-up demand appeared. Spending last month was nearly 3.4% higher than a year earlier according to the British Retail Consortium; a sharp turnaround from the fall of nearly 20% during April.

The reopening of pubs and restaurants was also positive, but the sector still has a long way to go before it reaches a full recovery.

Globally, the Chinese economy returned to growth in the second quarter of 2020, with GDP rising by 3.2% in the three months to June compared to the same period a year ago. The recovery has been driven by credit stimulus seen in strong infrastructure and property investment data, while the recovery in retail sales and private investment has continued to lag.

In markets, risky assets generally rose in Pound terms as fundamental economic data was positive, as was newly released information about two Coronavirus vaccine candidates – one from Oxford University in the UK. The Pound fell in value against all major currencies due to the disappointing GDP data and slightly higher than expected inflation, meaning overseas equity returns were boosted.

European equities rose by nearly 3.5%, boosted as EU leaders met to discuss the size, distribution criteria and structure of the much talked about €750bn recovery fund. Early reports are cautiously positive, with the ‘frugal four’ nations agreeing to slightly lower levels of grants as a proportion of the overall fund than originally hoped.

The FTSE 100 rose by 3.2% – helped by the weaker Pound – and Japanese equities rose by 2.9%. Domestic UK equities continue to struggle in relative terms; the FTSE 250 rose by 0.99% – below levels of other developed market indices. Finally, Emerging Market equities fell this week by 0.2%, led lower by Asian shares after a very strong rally in recent weeks.

Financial markets remain ‘risk on’ for the time being, even as infection numbers in the US remain high. As yet, there hasn’t been a meaningful spike in deaths – we very much hope this remains the case. Geopolitical tensions remain elevated, too, with various countries’ relations with China continuing to fray, but for now, the virus recovery narrative should continue to take centre stage.

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