Market Update

Global equity markets surged this week, fueled by signs of improvement in the global economy. Both the Empire State survey and the Philadelphia Fed survey indicated enhanced business conditions in June, with a stronger-than-expected rebound in the manufacturing outlook. Additionally, US retail sales for May saw a record increase, and mortgage applications soared to levels not seen since 2009, indicating increased confidence in job prospects among Americans.
These positive developments, coupled with unprecedented government and central bank stimulus, suggest that the US recession is rapidly coming to an end, fostering optimism for a 'V-shaped' economic recovery. Market sentiment was further boosted by news of the swift containment of the latest coronavirus outbreak in Beijing and China's commitment to honoring all obligations under the US/China Phase 1 trade deal. China's pledge to accelerate purchases of US products, despite reduced buying earlier in the year due to the outbreak, also hinted at a potential thaw in US/China tensions.
In the upcoming week, key events include the release of PMI data in the UK, Eurozone, and the US, US home sales, durable goods orders, the University of Michigan Consumer Sentiment index, and the usual weekly US jobless claims data.
However, markets opened slightly weaker due to concerns about the resurgence of coronavirus infections in countries like Germany and Australia, which had previously been successful in containing the outbreak. Apple's decision to re-close some US stores in regions with ongoing infection issues added to the market unease. The FTSE-100 is currently down around 10 points, or 0.15%.
Although the coronavirus outbreak appears to be accelerating, market reactions have evolved compared to the sell-offs in February and March. This shift is due to the unprecedented government and central bank stimulus measures, which are expected to sustain economic growth. Moreover, markets are less apprehensive about a second wave or an extended first wave of the virus, as governments worldwide seem less inclined to reimpose full lockdowns. The increase in infections is viewed as the cost of reviving the economy while strengthening test and trace capabilities.
However, certain stocks and sectors, such as the travel industry, continue to be adversely affected. As a result, investors are favoring companies that are more defensive or have strong investment cases independent of the coronavirus crisis, such as Unilever, GlaxoSmithKline, and Vodafone.