Market Commentary 10th August 2020 from Charlie Hancock

A Purchasing Managers Index (PMI) survey for the UK manufacturing sector indicated that activity bounced back sharply in July. The survey showed that output from UK factories increased at its fastest rate since November 2017.

Last week saw mixed results from UK listed companies. HSBC reported a 96% fall in net profits during the 2^nd quarter of 2020, with a £3.8bn provision for bad loans being around £1bn more than expected by analysts. The banking giant’s share price declined by 5.81% across the week. In contrast, investment platform provider, Hargreaves Lansdown, reported a “surge” in new clients during the coronavirus crisis, raising their dividend payment by a third. Their share price gained 6.63% across the week.

EasyJet PLC, which was recently relegated from the FTSE 100 index, saw their share price rise by 16.59% across the week after reporting that costs during the 2^nd quarter were lower than expected.

Manufacturing PMI data for the Eurozone indicated that activity expanded sharply in July. The surveys for Spain and Italy registered their highest readings for over two years, with Germany’s seeing a 19-month high.

Germany reported that trade volumes in June saw the sharpest monthly increase since records began. Whilst trade with the US and UK declined, exports to China increased by 15%. Overall, trade volumes were around 10% lower than the same period in 2019.

Data released last week showed that the unemployment rate fell to 10.2% in July, which was better than expected. The data showed that 1.8m jobs were added last month, with the pace of job gains slowing from the 4.8m recorded in June.

US-China tensions rose last week after President Trump issued an executive order which will ban the Chinese video app, TikTok, if it is not sold to a US company within 45 days. The owner of TikTok, Bytedance, have already been in discussions with Microsoft. The US administration have raised concerns that TikTok may be used to pass data to the Chinese government.

The broad FTSE All World Index – Asia Pacific rose by 2.06%. Japan’s Nikkei 225 index climbed by 2.86% and China’s Shanghai Composite Index gained 1.33%.

July’s PMI data for China was encouraging, with the reading for the manufacturing sector improving from the previous month. The reading for the services sector declined, although this was expected given the extremely strong reading from June’s survey.

The improvement in US unemployment figures contributed to demand for US government debt reducing, with investors happy to allocate capital to riskier assets instead.

GBP / EUR – Current 1.1077 Previous 1.1109

The Pound weakened slightly across the week, declining by 0.25% against the US Dollar and 0.29% against the Euro.

The Pound was supported by comments from the Bank of England last week. The bank stated that the recession in 2020 will be softer than previously expected, with a contraction of 9.5% rather than the 14% they estimated previously.

Expectations for a significant stimulus package from the US government helped to drive the gold price higher. Gold is typically viewed as a protection against inflation and some investors anticipate that current fiscal stimulus efforts will cause inflation to rise in the coming years.