Week ending 19th June 2020.

Global equity markets rose this week on the back of more evidence that the global economy is improving.

Both the Empire State survey and the Philadelphia Fed survey were consistent in showing business conditions in June improved, while the manufacturing outlook rebounded much stronger than expected.  Additionally, US retail sales (a pillar of the US economy) for May saw a record jump and mortgage applications rose to their highest level since 2009 (which is a sign that Americans are confident about their job prospects).

Taken together with the unprecedented government and central bank stimulus, this not only suggests the US recession is quickly coming to an end, but bodes well for a ‘V-shaped’ economic recovery.

Additionally, equity market sentiment was helped by news that the latest coronavirus outbreak in Beijing was quickly contained, coupled with news that China plans to honour all of its commitments under the US/China Phase 1 trade deal.  Not only does this mean China will need to accelerate purchases of US products in order to meet the terms of the trade deal after the coronavirus outbreak reduced purchases earlier in the year, but also suggests that US/China tensions may be thawing.

This week coming we have UK, Eurozone & US PMI; US home sales; US durable goods orders; the University of Michigan Consumer Sentiment index; and of course the weekly US jobless claims data.

Investment Management Team

Monday 22nd June 2020

Equity markets have opened marginally weaker this morning due to coronavirus worries, after new infections rose in Germany and Australia (two countries that have been among the most successful in containing the outbreak), while Apple announced it was re-closing some of its US stores where coronavirus infections are still an issue.  As we write, the FTSE-100 is down around 10 points, or 0.15%.

Although the coronavirus outbreak currently appears to be accelerating, the equity market reaction has evolved since the sell-offs we saw in February and March, given the unprecedented government and central bank stimulus – as this should ensure economic growth continues to quickly recover.

Additionally, markets are less concerned about a second wave (or extended first wave) of coronavirus, simply because governments around the world appear less inclined to reimpose the full lockdown restrictions we have seen and experienced, as the increase in infections is the price for getting the economy back on track while their test and trace capabilities are put in place.

However, this stance will obviously continue to negatively impact certain stocks and sectors, such as the travel industry (as a return to the strong demand for overseas holidays and cruises is still a long way off).  Consequently, we continue to avoid these companies, preferring companies that are more defensive and/or have a strong investment case that is independent of the coronavirus crisis, such as Unilever, GlaxoSmithKline and Vodafone.

Investment Management Team

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