Market Update

The past week was marked by a lack of significant economic data, but the data that did emerge held vital insights into the state and prospects of major global economies. There were three primary drivers influencing the week's financial markets. Firstly, it was the busiest week in the Q2 earnings calendar. Secondly, all eyes were on the policy meeting of the US Federal Reserve Bank (Fed). Lastly, there was growing concern due to the resurgence of coronavirus cases.
These factors resulted in a mixed performance in the markets, with many European markets ending negatively. The resurgence of coronavirus cases in Spain prompted various European countries, including the UK, Norway, and France, to implement travel restrictions, significantly impacting Spain's leisure and tourism sector during the peak holiday season. On the other hand, China and the US performed well, with both the Chinese Shanghai composite and the US S&P 500 closing the week with gains.
With these factors in mind and the heightened anticipation of the Fed meeting on July 29, 2020, one of the busiest weeks in the Q2 reporting calendar began with market volatility. Many companies, including McDonald's, Greggs, and Reckitt Benckiser, announced their earnings early in the week, revealing weak numbers for a quarter that included the lockdown period. However, well-managed companies that navigated the lockdown phase effectively reported better-than-expected earnings, and their reduced market valuations presented attractive buying opportunities for investors. Despite market compression early in the week, the noise in the markets provided a chance to purchase funds such as the Schroder US Mid Cap fund and the Threadneedle European Select Fund.
While the week started with mixed market performance, the Fed policy meeting helped stabilize broader markets. Although Fed Chair Jerome Powell made no significant policy changes, his reaffirmation of the Fed's accommodative stance reassured markets. Powell emphasized the need for flexibility in policy due to the surge in US coronavirus cases, putting pressure on the White House and lawmakers to reach an agreement on a fiscal stimulus package. Powell highlighted that a combination of monetary and fiscal stimulus would drive the US towards economic recovery. Following this positive message, global markets surged, particularly on July 30, 2020, when tech giants like Amazon, Alphabet (Google), Facebook, and Apple reported strong results. These companies benefitted from increased online shopping and remote communication during lockdowns, leading to impressive revenue figures, especially for Apple.
The market's movement was primarily influenced by policy decisions, news developments, and corporate earnings reports rather than economic data sets. Nevertheless, some key data points were released during the week, hinting at a recovery in the months ahead. China reported robust industrial profits for June, while the US exceeded expectations with its durable goods orders for the same month. Later in the week, Japanese retail sales surpassed expectations by 4.5%, and European inflation numbers remained strong at 1.2% year-on-year, despite localized weak inflation in Spain and Germany. Although the US and Europe were expected to report weak GDP growth for the quarter, the data suggested that consumers were still willing to spend. While employment data and wage growth in the UK, US, and Europe may be affected by noise due to ongoing furlough and wage support schemes, sustained consumer demand is likely to cushion any impact on these economic indicators.
Looking ahead to the next week, corporate earnings season will continue, and attention will turn to key economic data releases, including US Manufacturing, Manufacturing PMI for the UK and much of Europe, Japanese GDP, and US weekly jobless claims data. Additionally, the Bank of England is set to announce its policy and rate decisions on Thursday, August 6, 2020, following a meeting of the Monetary Policy Committee.