Monday saw US President, Donald Trump, leave a trade deal with China intact despite moving to end Washington’s special treatment for Hong Kong in retaliation for Beijing seeking to impose new security legislation on the city. In response, China has asked state-owned firms to halt purchases of soybeans and pork from the United States, only serving to increase tensions between the two superpowers.
Despite a growing rift between the two nations, global bourses chose to focus on the positives, rising nearly 1% as signs of an economic rebound from the coronavirus gathered pace. Investors took heart from signs that in Europe, France’s manufacturing activity rose in May as the country began to emerge from a nearly two-month lockdown. The news was also positive in Asia with an official business survey from China showing that although its factory activity grew at a slower pace in May, momentum in the services and construction sectors quickened. Domestic UK also joined the party, rising 1% in consecutive days as news of further fiscal relief for local businesses increased optimism, while investors continued to watch for signs of the British economy gradually emerging from havoc wreaked by COVID-19.
It was not all good news for UK businesses however, as the effects of lockdown on the travel and leisure sector caused the two heavyweights of Easyjet and Carnival Cruises to drop out of the prestigious FTSE 100. Flying straight into the mid cap index, the coronavirus took two thirds off Easyjet’s market capitalisation, making it the 125th largest listed company when the markets closed on Monday. Others companies in the leisure sector, such as Whitbread, owner of the Premier Inn chain, were also hovering dangerously close to the departure gate, with firms that have benefitted from opening earlier from lockdown, such as B&Q owner, Kingfisher, moving back into the blue chip index.
The first Friday of the month saw the US Bureau for Labor Statistics release Non-Farm Payroll numbers, almost stunning markets, as over 2.5 million Americans joined the work force, compared to forecasts that a further 7.5 million may lose their jobs. This resulted in the unemployment rates unexpectedly dropping to 13.3% from 19.4%, sending markets into a frenzy just before the weekend.
As the nation waits to see if domestic lockdown measures could be relaxed further here in the UK, economists will look to those countries that have already partially re-opened. Monday morning will provide a gauge for just how easy it is to bounce back from the havoc wreaked by COVID-19 as China releases its trade balance for the previous month.
Detailing the difference in value between imported and exported goods during the previous month, China saw a massive slump in March and April but has since shown signs of bouncing back strongly. Economists will be hoping for a continuation of the trend and could well set the tone for the coming week depending on its resilience.
Over here in Europe, Monday afternoon will see the President of the European Central Bank (ECB), Christine Lagarde, testify before the European Parliament Economic and Monetary Affairs Committee, in Brussels. With the bank having ratcheted up its efforts to prevent the eurozone slipping into a deflationary spiral the previous week, increasing its bond buying stimulus package to €600 billion it will be interesting to hear what further remarks Mrs Lagarde has on the future monetary policy.
Form one central bank to another, the middle of the week will see the US Federal Reserve publish the minutes from the previous meeting, alongside future projections of economic growth and how the outbreak of the coronavirus has affected the world’s largest economy. Jerome Powell, the Chair of the Fed, will also hold a press conference with journalists lasting two hours in which he will first read a prepared statement, then the conference is open to press questions. The questions often lead to unscripted answers that create heavy market volatility, especially in the currency markets.
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.