The beginning of the week seemed like a day at the beach for investors as it looked like the clouds brought on by the outbreak of COVID-19 had finally started to part. Monday and Tuesday saw the tail end of a rally that had pushed Asian-exc Japan shares higher for nine consecutive days. Technology stocks were also in vogue, spurred on by a resurgent Apple, leading the tech-heavy Nasdaq Composite to close higher, briefly clearing the 10,000-level for the first time in its history. Apple’s performance helped erase any losses the S&P 500 had endured earlier in the year during the worst of the COVID-19 outbreak.
However, such losses were to resurface as the week wore on; worries that the global economy was in worse shape than feared, mixed with fears that an easing of lockdown may be premature, caused markets to roll once more. The domestic blue-chip index, the FTSE 100, saw its gains go up in smoke as cigarette maker, British American Tobacco fell 3.1% after it flagged a drop in demand due to prolonged lockdowns in South Africa and Mexico, with weak sales also flagged in Bangladesh and Vietnam.
Investor worries were compounded on Thursday as markets were rattled by the US Federal Reserve’s dire assessment of its country’s economic prospects. Travel and leisure stocks were hit hardest after Fed Chair, Jerome Powell, said the world’s largest economy faced a long path to recovery from the pandemic and that it would keep interest rates close to zero until at least the end of 2022. The worry was palpable as the S&P 500 tumbled 5.9%, its largest fall since mid-March, when the pandemic initially rocked markets. The Vix volatility index, nicknamed Wall Street’s “fear gauge”, rose 14 points to 41, its biggest one-day jump since March.
Often using the performance of the stock markets as an approval barometer, Donald Trump felt compelled to chime in to try and quell the losses by Tweeting a tidal wave of self-support:
“The Federal Reserve is wrong so often…I see the numbers also, and do MUCH better than they do. We will have a very good Third Quarter, a great Fourth Quarter, and one of our best ever years in 2021. We will also soon have a Vaccine & Therapeutics/Cure. That’s my opinion. WATCH!”
With Chinese economic data showing encouraging signs that it is the first of the developed nations to emerge from the outbreak of COVID-19, many will be hoping that the trend will continue as China releases a slew of data on Monday.
Potentially setting the tone for the rest of the week, the National Bureau of Statistics of China releases data detailing retail sales, corporate investment levels, unemployment and perhaps most importantly, industrial production. Industrial production details the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities etc. within the country. The data is so important as it is regarded as a leading indicator of economic health with production being the dominant driver of the economy, causing firms to react quickly to the ups and downs in the business cycle.
With the UK heading for a deep recession and data showing that over a quarter of employees have now been furloughed, Tuesday’s employment data will be key. While employment data will show the levels of those who have become unemployed over the previous three months, largely driven by the outbreak of COVID-19, we are also given average earnings figures, which have been consistently robust over the past few years. However, with the current lockdown situation this trend could reverse sharply.
The data will act a precursor to “Super Thursday”, the Bank of England’s (BoE) showpiece, held every few months. The Bank will inform us about their decision on interest rates and QE. It will also publish the minutes of the meeting as well as the Quarterly Inflation Report at the same time. New Governor, Andrew Bailey, will then deliver the BoE press conference. With the Bank refusing to rule out negative rates being introduced for the first time, analysts will be scouring his words for clues as to future rate moves.
The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in June 2020.