Weekly Market Commentary: 1 July 2020
Welcome to July and the start of the third quarter. Before we look forward – let’s take a look back.
The second quarter of 2020 will go down as one of the best performing periods for equity markets over the last decade. The FTSE 100 was up 8.8% in the second quarter, having fallen 24.8% in the first quarter. Whilst the UK performance looks impressive in absolute terms, on a relative basis there is notable outperformance from US equities over the same period which has been driven by their Growth orientated Technology bias.
During the second quarter the S&P 500 was up 20%, having been down 20% in the first quarter. This isn’t just a US phenomenon. The main Japanese stock market, the Nikkei 225, was 17.8% higher in the second quarter, having also been down 20% in the first quarter.
Yesterday, the official UK Gross Domestic Product (GDP) was released and it showed that the economy fell by 2.2% in the first quarter of 2020 to equal a drop dating back to 1979. There was more bad news released on the UK economy this morning as UK house price growth “ground to a halt” in June, according to data from Nationwide, with an annual contraction in prices for the first time since 2012. House prices slipped 0.1% in June on a year before, with prices down 1.4% month-on-month. This is the first time that annual house price growth has been in negative territory since December 2012.
Over the last few weeks markets seem to be stuck between weighing the impact of economies reopening but also reminded that we are not “out of the woods” yet. The number of Coronavirus cases worldwide has now passed 10 million and lockdown restrictions are re-emerging from the US and Australia, whilst Brazil continues to see the number of cases increase.
California on Sunday ordered some bars to close – the first major rollback of efforts to reopen the economy in the most populous US state as cases nationwide soar to record levels day after day. Governor Gavin Newsom’s order for bars to close in Los Angeles and six other counties followed moves by Texas and Florida to shut all their bars on Friday. Public health officials in California and throughout the nation have identified bars as the riskiest non-essential businesses currently open, the state said.
Australia has also been slowly emerging from lockdowns since the federal government announced a three-stage plan in May to ease restrictions across the country, but at the end of June some suburbs of Melbourne have returned to lockdown after localised outbreaks.
The economic impacts continue to be seen as the International Monetary Fund (IMF) said that this “crisis like no other” would send the global GDP plunging by 4.9% this year. It said that many countries will face a recession more than double that which they suffered during the global financial crisis in 2008-2009. The IMF forecast is that China, where the virus emerged late last year, would be the only economy that grows this year, by just one percent. The US is forecast to shrink by eight percent, Germany slightly less, while France, Italy, Spain and Britain would all suffer double-digit contractions.
Chief Investment Officer – Luna Investment Management
Source: Alpha Terminal