Market Update 20th July 2020 from Charlie Hancock

Posted by melaniebond
Market Commentary 20th July 2020
Equity Indices
The FTSE 100 rose by 3.20% last week, with the large cap index boosted by strong performance in the Pharmaceutical and Energy sectors. The mid-cap FTSE 250 index gained 0.98% across the week.

Much of the upbeat sentiment amongst investors last week was driven by hopes for a Covid-19 vaccine. ITV news reported on Wednesday that positive news is expected from a trial being carried out by Oxford University and AstraZeneca PLC. The Pharmaceutical giant’s share price rose by 8.02% across the week and lifted other stocks in the healthcare sector, with rival GlaxoSmithKline gaining 5.41%.

The optimism surrounding vaccine developments outweighed the news of increasing coronavirus cases in the US.

European equities were also lifted by the positive sentiment regarding vaccine developments. The broad FTSE All World Index – Europe ex UK gained 2.55% and Germany’s DAX index rose by 2.26%.

Investors were in a positive mood ahead of the weekend’s European Union summit, with hopes that EU leaders will make further progress on a €750 billion recovery fund. The European Central Bank (ECB) confirmed they were leaving monetary policy unchanged. The bank’s president, Christine Lagarde, re-iterated that extremely low interest rates would be necessary to support an economic recovery in the Eurozone.

The French government announced further fiscal stimulus measures last week, with president Emmanuel Macron stating that an additional €100 billion will be spent to support the economy on top of the €460 billion already pledged. The new package will be aimed at supporting employment levels and includes funds to help badly impacted businesses in the service sector, such as restaurants and hotels.

US equity indices were in positive territory last week. The S&P 500 index gained 1.25% and the Dow Jones Industrial Average index climbed by 2.29%.

Investors were focused on the potential for a vaccine to be developed, with record numbers of new coronavirus cases in the US having no significant impact on sentiment last week. The Governor of California, which is the most populous state, ordered all bars, restaurants and movie theatres to close their doors.

Earnings results from US banks added to the positive sentiment last week, with Goldman Sachs, JPMorgan and Citibank all reporting better than expected results. Wells Fargo bucked the trend, reporting its first quarterly loss since the global financial crisis of 2008.

Markets in Asia were mixed last week, resulting in the FTSE All World Index – Asia Pacific being broadly flat at +0.04%. Japan’s Nikkei 225 index rose by 1.82% and China’s Shanghai Composite Index declined by 5.00%.

The Chinese stock market gave up some gains from the rally experienced earlier this month, with analysts citing a mixture of profit taking and concerns around US-China relations as key drivers. Economic data released last week was positive, with China’s Gross Domestic Product (GDP) for the 2nd quarter rising by a better than expected 3.2% in comparison to the previous year. International trade data also showed improvements, with imports and exports rising in June.

The Bank of Japan voted to keep interest rates unchanged last week. The bank’s governor, Haruhiko Kuroda, delivered some positive comments to news reporters, stating that the economy has bottomed out and is in recovery mode.

Bond Yields
The 10-Year Gilt yield was unchanged at 0.16% amidst a relatively stable week for government bond yields around the globe.

Official data showing that the UK’s economy grew by 1.8% in May was significantly below the 5.5% expected by economists. Weak data of this kind will add to expectations of interest rates being kept on hold by the Bank of England.

The 10-Year German Bund yield rose from -0.47% to -0.45%. Government bond yields across Europe were stable, with investors awaiting the outcome of discussions at the weekend’s EU summit.
The 10-Year Treasury yield declined by 1 basis point across the week to 0.64%.

Inflation data from the US showed that core consumer prices increased by 1.2% in the year to June. At well below the Federal Reserve’s 2% target, this will provide the Fed with justification for keeping interest rates at record lows.

GBP / USD – Current 1.2553 Previous 1.2622

GBP / EUR – Current 1.0990 Previous 1.1172

The Pound slipped by 0.55% against the US Dollar and 1.63% against the Euro. The Eurozone currency strengthened on expectations of EU leaders making substantial progress on negotiations for an EU recovery fund.

The Gold spot price rose by 0.65% to $1,810.42 per ounce last week.

Loose monetary policy and a weaker US Dollar are both positive for gold prices. As a result the precious metal has found support in recent months, even as investors seek increased exposure to risk assets such as equities. Gold is typically in reduced demand when equity markets rise.

The Brent crude spot price was 0.23% lower across the week at $43.14 per barrel. The OPEC group of oil producing nations agreed last week to ease production cuts from next month, citing an improvement in demand.