Market round-up: 28-02 July

Thomas Watts


This week

In a week which saw the English football team  progress into the last 8 of the European championships at their long-time tormenter’s expense, with some irony, it was European travel stocks that were in decline, as all roads led to Rome for Saturday.

The beginning of the week saw the travel and leisure sector, especially those equites listed on the continent come under renewed pressure, following new spikes in COVID-19 cases across Asia. Those listed in London did not fare much better, with Easyjet, BA owner, IAG, and TUI all dragging the FTSE 100 lower.

With Italy also progressing though to the quarter finals, the luxury market in the nation also celebrated a victory. Shares in Burberry tumbled 5.1% to the bottom of the FTSE 100 as it was announced that their Chief Executive Officer Marco Gobbetti was resigning. On the other side of the coin however, Italian luxury group Salvatore Ferragamo, jumped 2.9% after saying it had named Gobbetti as its new CEO.

With news that the National Grid were planning to expand their electricity supply at precisely 5:45 on Tuesday due to predictions that  millions upon millions of kettles would be boiled at that precise time, it was actually from the US where the economic spark was to be found. During the middle of the week, data showed that U.S. private payrolls increased more than expected in June, as companies rushed to boost production and services amid a rapidly reopening economy, though a shortage of willing workers continued to stymie a full labour market recovery.

Private payrolls increased by 692,000 jobs in June. Data for May was revised upwards to show 583,000 jobs added instead of the initially reported 559,000.

Unsurprisingly, with lockdown restrictions reducing in certain states, the data showed hiring in the leisure and hospitality sector accounted for nearly half of the increase in private payrolls this month.

Such strong data was all fuel for the furnace by Thursday as European shares pushed towards all-time highs, pushed higher by oil majors as crude prices jumped by $2 a barrel. Coupled with lower US crude inventory numbers, reported that OPEC would hike production by less than expected, stoking worries of a supply shortfall later on in the year.

To round the week off, US Non-Farm Payrolls came in much above consensus, further demonstrating the US markets’ swift recovery. Total employment rose by 850,000 workers  in June compared to forecasts of 725,000. However with a labour shortage starting to manifest in the US, it was interesting to see that hourly earnings remained at a 0.3% growth rate, showing that this phenomenon may not have fed through just yet.  A suggestion that more are entering the workforce came in the form of the unemployment rate, which actually crept up from 5.8% the previous month to 5.9%, despite such a high number of jobs being added.

Next week

The coming week could start in a relatively subdued manner  as the world’s largest economy, the United States, closes its doors on Monday in Observance of their Independence Day.&

However, thinner trading volumes could provide us with our own type of fireworks, especially in currency markets, as the UK releases its Services PMI data. Being a heavily services led economy, the data should take on added significance, especially as the UK emerges from the shadow of the COVID-19 pandemic.  The data will serve as a leading indicator of economic health as businesses tend to react quickly to market conditions, with their purchasing managers holding perhaps the most current and relevant insight into the company's view of the economy.

With a reading of over  50 indicating expansion and anything below, contraction, the last 3 monthly readings have shown increasingly strong gauges, all in expansion territory, a theme economists and investors alike will hope continues.

Towards the middle of the week, it will be all eyes on Europe as ZEW releases its German economic sentiment figures. A survey of European institutional investors and analysts, the data acts as another leading indicator of economic health and is well respected in the broader European market due to Germany’s size and influence within the European Union. The data is also very comprehensive with about 275 German institutional investors and analysts surveyed, being asked to rate the relative 6-month economic outlook for the Eurozone.

The week will be rounded off by both the Governor of the Bank of England, Andrew Bailey, and his European counterpart, Christine Lagarde , participating in a panel discussion titled "Digitalisation, intangibles and potential growth in a post-COVID world" at the Global Forum on Productivity, in Venice. With both holding considerable influence on future rate policy for their respective economies, the summit could well set the tone for the following Monday.