Market round up: 20 - 24 July

Thomas Watts

This week

After last week saw Tesla become the world’s largest car company by market cap, having risen some 500% this year, the last five days have seen European car manufacturers roar back after Daimler announced stronger than expected results. The news bucks a worrying trend for European automakers that prevailed since competitor Volkswagen was caught up in the emissions scandal.

With stronger demand showing for the top-end Mercedes and its newer electric car range, analysts upgraded their ratings on the stock, sending its shares higher. A cost cutting drive coupled with a strategy of targeting sales growth in its more expensive models during lockdown seems to be working, but there is a long road ahead for the German company which has still reported a fall in revenue by 30% and an Earnings Before Interest and Taxes (EBIT) loss of 1.68 billion euros.

In a week where most market moving news was to be found in Europe, Tuesday saw investors cheer a shift in gear towards fiscal integration in the European Union with a new recovery fund finally agreed amongst the bloc. Seen as a turning point for the region’s financial assets, it is hoped that the new fund can heal the growing north-south divide in Europe, as well as offer a cohesive plan to get the continent back on its feet. The fund itself includes a 750 billion euro (£683 billion) rescue package and has already had the desired effect of helping some of the more indebted European nations, with Italian government bonds returning 6% since it was first proposed in May, with Tuesday’s breakthrough deal sending borrowing costs in Italy to their lowest since March, recovering much of the coronavirus sell-off.

As the week wore on however, sentiment went into reverse. Thursday saw US-China tensions heighten once more causing the dollar to slip to an almost two-year low with gold prices rising for the fifth day in a row towards all-time highs on Thursday. With the US tech sector having performed so strongly since March’s market nadir, investors took the opportunity to sell Apple shares as news broke that multiple U.S. states are investigating Apple for potentially deceiving consumers. Falling nearly 5% on the day, the tech behemoth also dragged down its peers with Microsoft, Amazon, Facebook and Google parent Alphabet all tumbling. Staggeringly, the five stocks have returned about 35% this year, compared to a 5% decline for the remaining stocks in the S&P 500.


Next week

The coming days see the last full week of July as we transition to August, the month typically associated with the harvest. Many investors will be hoping they can continue to reap the returns the second quarter of 2020 provided, bouncing back strongly from March’s market nadir.

The first signs of any pickup in economic activity usually comes from the consumer and so Tuesday’s Conference Board Consumer Confidence numbers released for the US should make for interesting reading. The data is well respected due to the breadth of its respondent data, surveying about 3,000 households, asking respondents to rate their relative level of current and future economic conditions including employment availability, business conditions, and their overall economic situation. With a strong pickup in spending in the US, rising to levels not seen since before March, it will be interesting to see if the survey reflects this more optimistic tone. 

The data from the survey should dovetail well with Wednesday’s US Home Sales numbers. As consumers grow more optimistic, making larger life decisions and purchases as they go, this should feed into a rise in activity in the property market. The data itself details the change in the number of homes under contract to be sold but still awaiting the closing transaction, excluding new constructions, which can skew the figures slightly. New house purchases tend to create a ripple effect in the wider economy, for example, new furniture tends to be bought, as well as renovations by the new owners, a mortgage is sold by the financing bank, and estate agents and solicitors are paid for their part in the transaction. 

The coming week is rounded off by Chinese Manufacturing PMI data, a set of numbers that could well set the tone for the beginning of August. Signs that the world’s second largest economy is rising from the ashes of the Coronavirus have been manifesting over previous weeks but with  manufacturing still being the main plank of the Chinese economy, economists will be scrutinising the data to see just how far China has emerged.