Market round up: 27 - 31 July

Thomas Watts

This week

The week that was not only saw temperatures soar but also the housing market start to warm up with better than expected economic data on domestic shores. The positive news was outweighed by poor US figures and further worries that the world’s largest economy was leaving the door open to a second wave of COVID-19 infections. 

With the decision from the man in No 11 to abolish stamp duty on property purchases under £500K yet to filter into the broader market, the strong housing statistics acted a welcome surprise.  Although bouncing back from record lows in May, mortgage approvals quadrupled, and households also showed signs of spending more as the economy began to open up after the Coronavirus-induced lockdown. 

The data showed that lenders approved 40,010 loans to buy homes in June, up from May’s record-low reading of 9,273, far more than the increase economists polled by Reuters had expected, though approvals are still down 46% from their levels in pre-crisis February. Households also repaid a net £86 million of unsecured debt, the lowest amount since February and much less than the £2 billion expected by economists, in a sign of a return to old spending habits as the lockdown eased.

However, the optimism felt in the early half of the week quickly turned to despair, as Thursday ushered in a host of disappointing earnings updates from the banking sector.  Dragging the overall market with it was Lloyds Bank, sliding over 10% to an eight-year low after swinging to a rare pre-tax loss in the first half of 2020 due to higher than expected loan loss provisions. Although pharmaceutical behemoth Astra Zeneca gave some cause for cheer on increased sales since the COVID-19 outbreak, the FTSE 100 fell nearly 2.5%, falling back below 6,000 points. 

Not helping matters was data showing a historic contraction in second-quarter US GDP and a tweet by President Donald Trump floating the possibility of delaying the November presidential elections due to the pandemic. Figures showed the US economy suffered its steepest slowdown since the Great Depression during the second quarter of 2020, as business activity came to an abrupt halt on efforts to slow the virus outbreak. Jobless claims also showed another rise, adding to signs that the momentum of economic recovery has slowed, especially in southern and western states. 

To compound the bad news, the US President also tweeted his concerns over postal voter fraud, a possible excuse to delay an election he is lagging in the polls for, serving to push more investors to wait by the sideline.

Next week

With the hot weather set to continue into next week, coupled with the rising possibility of a second wave of COVID-19 in the UK and much of Europe, many will be wondering just how to make the most of the warm conditions. 

With that in mind, Monday will show us just how much those on the continent have been making over the past month as a slew of manufacturing PMI data is released for most of Europe’s major economies. The release should give us a comprehensive view of just how well the continent is bouncing back from the Coronavirus-induced slump of March and April, detailing performances from southern European nations such as Spain and Italy, and more industrial powerhouses such as France and Germany. 

Across the English Channel on more domestic shores, the Bank of England (BoE) ushers in “Super Thursday”, an attempt to release a month’s worth of economic data in one afternoon. Releasing their thoughts on the domestic economy, Andrew Bailey, Governor of the BoE commented that Britain’s economy is recovering quicker than they had predicted a month ago as the government eases its COVID-19 lockdown. However, with fears over a second wave, it will be interesting to hear just what the bank makes of the prospects for the economy. With sterling having rallied hard against the USD over the previous few weeks to levels not seen since January, many believe that the Monetary Policy Committee will leave rates untouched for now.

The first Friday of the month wraps up the week as always with US Non-Farm Payroll data. A key piece of information when determining the US central bank’s next rate move, the employment data, will be accompanied by Average Hourly Earnings allowing us to gauge how inflation may manifest in the world’s largest economy. Although the US economy has started to open up more than most, it is also facing a second wave of infections, forcing such states as California and Texas to reassess their social distancing policies, meaning we could see a retrenchment from last month’s heartening figures.