Market round-up: 10-14 August

Thomas Watts


Weekly round-up

As consistently high temperatures disrupted most people’s sleep patterns during the past week, it has been on Threadneedle Street where the most sleepless nights have been had.

Wednesday’s news confirmed what many economists had feared; the UK was now facing a long climb back to pre COVID-19 levels after an historic 20% crash in the second quarter. The data depicted the most severe contraction reported by any major economy so far; a wave of job losses set to hit later in 2020, confirming that the world’s sixth-biggest economy had entered a recession, with the low point coming in April when output was more than 25% below its pre-pandemic level. The drop in GDP far exceeded the 12.1% drop in the Eurozone and the 9.5% fall in the United States.

However, the numbers only painted half a picture as growth returned in May and actually quickened during June, when the economy expanded by a monthly 8.7%. That was a record single-month increase and slightly stronger than forecasts by economists in a Reuters poll. Despite such a strong bounce back, the Bank of England admitted last week that it may take until the final quarter of 2021 for the economy to regain its previous size, and warned unemployment was likely to rise sharply. 

Despite the doom and gloom felt by the overall UK economy, the domestically exposed FTSE 250 touched its highest level in two months as hopes of a stimulus-led rebound were spurred on by Bank of England Deputy Governor, Dave Ramsden, who said the central bank would step up quantitative easing if the economy was to slow again. Also pushing investors back into domestic equities was data that showed British consumers spent the most in July since a coronavirus-led lockdown in March, as pubs, restaurants, barbers and beauty salons reopened.

It was not just on domestic shores that equites enjoyed a strong week, investors also made the call to buy European telecom stocks as a billion-dollar takeover offer for Swiss firm Sunrise Communications boosted the sector. A flurry of activity within the sector spurred several stocks on, including Sunrise Communications, which surged  26.8% to a record high after U.S. firm Liberty Global launched a takeover offer for the company in a deal valued at CHF6.8 billion. Shares in German telecoms investor Freenet, Sunrise’s largest shareholder, jumped 16.8%, leading the broader sector to gain 1.7%.

Week ahead

As the heatwave that engulfed the UK subsides, many will be planning their holidays to the continent for warmer weather. The coming week certainly sees events heat up in Europe as the Eurogroup are set to convene on Monday. 

The beginning of the week could be an important day for investors as the Eurogroup coordinates economic policies for all 19 Eurozone member states, and their initiatives and decisions can have a widespread effect on the Eurozone's economic health. Usually held in Brussels and attended by the Eurogroup President, Finance Ministers from Euro Area member states, the Commissioner for economic and monetary affairs, and the President of the European Central Bank, the events are hugely important to markets, and watched closely by investors. Delegates discuss a range of financial issues, such as euro support mechanisms and government finances, with a media session to conclude. 

The Bank of England will host its very own address on Tuesday as new Governor, Andrew Bailey, and several MPC members testify on inflation and the economic outlook for the UK before Parliament's Treasury Committee. The hearings are a few hours in length and can create market volatility for their duration as the Bank drops hints over what future monetary policy may be. 

In an unusually quiet week for economic data releases, we head back to Europe on Friday as Consumer Confidence figures are released. With confidence showing some tentative signs of recovery on the continent, economists will be hoping that this trend continues as shops re-open across Europe’s beleaguered rues and strasses. 

Dented but improving consumer confidence numbers could act a precursor to PMI numbers released across Europe and the UK on Friday. PMI numbers are a useful part of the economist’s toolkit as they act as a leading indicator of economic health - businesses react quickly to market conditions, and their purchasing managers perhaps hold the most current and relevant insight into the company's view of the economy. Interestingly, the two largest economies in the Eurozone, Germany and France, release data for both their Manufacturing and Services sectors an hour before the UK does.

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 August 2020.