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Weekly Bulletin: Markets finally react to new pockets of COVID-19

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Investment Team

5 min read

Growing momentum in the rate of new COVID-19 cases in parts of the globe created a less comfortable week for financial markets. Amid the downbeat news, some glimmers of hope continue to emerge among more granular economic data. 

Key takeaways

In virus news, the number of confirmed cases in the US has passed 2.5 million, coinciding with the rapid reopening of the economy following lockdown conditions. Southern states like Texas and Florida have been particularly badly hit. Local indicators of the re-emergence from lockdown include restaurant bookings, which had begun to pick up in these states, but have drifted down again over the past week or so. Since the death toll of the pandemic necessarily lags the number of confirmed cases, COVID-19-related deaths in the US are now expected to rise quite meaningfully too.

  • In a number of emerging market economies, COVID-19 cases are also picking up the pace. In India, this comes in spite of early stringent lockdown rules, and while cases in the context of the size of India’s population remain small, their rate is rising. Across the world, leaders are being forced to decide on their top priority: saving lives, or saving the economy.

  • Last week also saw the release of the International Monetary Fund’s updated forecasts for the global economy in 2020, which moved projections for economic growth to a new historic low of -4.9%. Adjustments like this suggest that the impact of the COVID-19 pandemic on the global economy is now set to be far larger than many economists had initially estimated.

  • However, not all economic news was so downbeat last week. Fresh manufacturing and service sector survey data pointed to improving (not necessarily positive, but at least less negative) numbers as major economies continue to reopen. Following a sharp drop in economic activity during the most stringent days of lockdown, this appears to be rising back up in most regions.

  • In US politics, President Trump continues to lose ground in the polls to presidential hopeful Joe Biden. Much will be decided by Biden’s choice of running mate (the potential vice president), due to be announced in the coming weeks. Private businesses and financial markets will be especially wary of particularly left-leaning candidates, seen as engendering a less friendly attitude towards corporate America.

Weekly market moves

  • Global stock markets had a difficult week, with the US underperforming most major markets in sterling terms.

  • Despite positive performance for a number of consecutive weeks, the oil price fell due to growing concerns over global growth, particularly around the potential severity of a ‘second wave’ of the COVID-19 virus.

  • Government bond prices rallied over the week as investors turned towards less risky assets. As a result, bond yields (which move inversely to their prices) fell.

What to look out for this week

  • As we write, German Chancellor Merkel is meeting French President Macron, with the EU budget and the European Recovery Fund up for discussion.

  • The most anticipated economic data release of the week will be June’s labour market figures for the US, due on Thursday.

  • Watchful eyes will also be on UK prime minister for any further details of the infrastructure spending promised in an interview over the weekend.

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Investment Team

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