Market Update

This week, global equity markets closed slightly lower, but looking beyond the numbers reveals a more nuanced picture, akin to reading between the lines of news headlines. Despite ample reasons for negativity, the easing of coronavirus lockdowns and unprecedented government and central bank stimulus programs are poised to drive a global economic recovery. However, as emphasized in previous updates, short-term equity market volatility is expected as the path to recovery is rarely straightforward.
In China, the week commenced on a positive note as the People's Bank of China (PBOC) maintained unchanged prime loan rates for July, indicating confidence in the economy's reopening progress and the absence of immediate need for additional stimulus.
The spotlight remained on China's relations with the US and the UK, with the UK suspending its extradition treaty with Hong Kong and imposing an arms embargo, while the US ordered the closure of China’s consulate in Houston, Texas. China's response was measured, reflecting restraint in its actions and a balanced approach.
In the US, labor market data showed an uptick in initial jobless claims due to rising coronavirus cases, leading to renewed closures of businesses in some states. Despite these challenges, the US economy is poised for a third-quarter rebound following the lifting of lockdown restrictions. Treasury Secretary Steve Mnuchin and Director of the US National Economic Council Larry Kudlow remain optimistic, anticipating a significant recovery, albeit potentially at a slightly slower pace.
In Europe, leaders reached a unanimous agreement on the region's financial response to the pandemic, demonstrating solidarity among member nations. However, concerns arose regarding European leaders shifting their focus away from Brexit negotiations until after the summer, impacting UK equity markets. Despite this uncertainty, the UK equity market, dominated by international businesses, remains resilient, with many companies offering compelling long-term investment opportunities.
On a corporate level, some companies have shown resilience amid the pandemic. Kingfisher reported strong sales despite store closures, reflecting increased demand for home improvement products during lockdown. Unilever experienced higher demand for personal care products, a trend expected to persist post-pandemic. AstraZeneca reached an all-time high due to a positive update on its coronavirus vaccine development and its successful transformation efforts in recent years.
Looking ahead, the upcoming week will see numerous companies releasing second-quarter trading updates, providing further insights into economic recovery. The US will announce its interest rates policy, and the initial estimate of US GDP for the second quarter will be revealed. In the UK, additional lockdown restrictions are set to be eased, allowing the reopening of gyms, pools, and sports facilities on Saturday, July 25, 2020.