Global Markets Update Monday, 15 June 2020

Posted on 15 Jun 2020

Global stockmarkets fell and bonds rose as investors were unnerved over the Fed’s gloomy outlook for the US economy, as well as signs that US cases of Covid-19 were rising in states in the south and west that have eased lockdowns.

Global Market Update

UK

The FTSE 100 declined 5.8% over the week.

UK GDP plunged 20.4% in April, the worst monthly fall on record. Most areas of the economy declined sharply, with pharmaceutical production the only subsector to register an expansion, with 15.4%. In the three months to April, the UK economy contracted 10.4%. This is far larger than any quarterly contraction since records began in 1955 and reduces the real value of goods and services produced in the country to the level seen in 2002.

The UK government officially rejected the opportunity to extend the Brexit Transition Period but undertook a policy U-turn by abandoning plans to introduce full border checks with the EU on 1 January 2021. Instead the government will now introduce a temporary light-touch regime at UK ports for incoming EU goods, under both a deal and “no-deal” scenario. However, the EU said it planned to undertake full checks on goods coming from the UK.

US

The S&P 500ropped 4.5% over the week, its worst weekly performance since March.

In its latest meeting, the Federal Reserve said the US economy faced a long path to recovery from the pandemic, with officials estimating that, by 2022, the US would still be facing 5.5% unemployment with core inflation at 1.7%. The Fed forecast that it would keep interest rates near zero until at least the end of 2022 and pledged to continue buying Treasuries and mortgage-backed bonds at least at the current pace.

Another 1.54 million US citizens registered for the first time for unemployment benefits in the week ending 6 June. While this was down from 1.9 million the previous week, it was the tenth consecutive weekly decline.

The University of Michigan’s consumer sentiment index rose to 78.9 in June, its second consecutive monthly increase - and compared to 72.3 in May.

The headline US inflation rate eased to 0.1% in May, the lowest rate since September 2015. This compares to a rate of 1.5% in February and 0.3% in March. Core inflation eased to 1.2%, the lowest level since March 2011.

Europe

The FTSEurofirst 300 lost 5.5% over the week.

Eurozone industrial output tumbled by a record 17.1% in April as car making ground to a halt and Airbus cut production by a third.

Japan

The Nikkei 225 fell 2.4% over the week.

The Japanese economy shrank at an annualised rate of 2.2% in the first quarter of 2020, compared with initial estimates of a 3.4% decline.

Pacific Basin

Chinese exports shrank 3.3% in May, much better than the contraction that most economists had expected. However, imports fell more than anticipated due to weak local demand, raising questions over the pace of the country’s economic recovery from the virus.

Emerging Markets

India’s confirmed COVID-19 infections surged, with Mumbai emerging as a hotspot, while Brazil’s death toll exceeded that of the UK.

Turkey’s industrial output plunged by 31.4% on a year-on-year basis in April.

Mexico’s industrial output slumped by a record 29.6% in April.

Bonds

The yield on the 10-year US Treasury closed the week at 0.70%, having traded as low as 0.66%, while the 10-year German Bund ended the week on a yield of -0.44%.

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