Market Update

As Marie Curie wisely noted, "I was taught that the way of progress was neither swift nor easy." This sentiment holds true not only for scientific progress but also for investing, as demonstrated by the recent turbulence in global equity markets. The accompanying table illustrates the significant decline in global equities this week due to growing concerns about a potential second wave of coronavirus cases.
Despite a gradual decline in national cases, some US states like Arizona and Oklahoma have experienced an increase in coronavirus infections. Whether this signals a second wave or not, markets have begun to price in the possibility. Equity markets often exhibit volatility, overshooting both on the upside and downside. This week's downturns, in our view, reflect a correction after recent gains rather than a new downward trend. There hasn't been a fundamental shift to warrant panic, especially considering that the hardest-hit stocks were those previously rallying strongly but still exposed to the ongoing impact of coronavirus restrictions, such as IAG (the owner of British Airways), easyJet, Carnival Cruises, and InterContinental Hotels.
This week's economic news highlighted the Fed's monetary policy meeting, where Fed Chair Jay Powell reassured the market that the central bank would continue providing necessary stimulus until the economy fully recovers. While UK GDP data for April showed a contraction of 20.4%, a result in line with expectations, other data indicated positive signs as lockdown restrictions eased. For instance, the University of Michigan Consumer Sentiment Index showed improved confidence, indicating that consumption behavior might not suffer permanent damage from the coronavirus outbreak and rising unemployment.
Looking ahead to the upcoming week, economic data releases, including UK employment data, CPI inflation, retail sales, and a BoE monetary policy meeting, will be crucial. In the US, retail sales, industrial production, housing starts, and the weekly jobless claims data are noteworthy, while China's industrial production and retail sales data are awaited.
Despite concerns over a resurgence of coronavirus cases leading to a decline in global equity markets, we believe the market's focus should be on economic data releases rather than daily infection counts. Although new cases have been reported, the increase should be viewed in perspective due to the significantly higher testing volume worldwide. Moreover, some positive economic data from China, indicating the country's recovery despite weak global demand caused by lockdown restrictions, was overshadowed by the news. Industrial production in China rose by 4.4%, and while retail sales for May were still 2.8% lower than the previous year, it marked a notable improvement from April's 7.5% decline, considering that certain sectors like cinemas haven't fully reopened yet.