Weekly Market Insight

Latest Economic & Market Update 27th July 2020

27th July 2020

Good afternoon, it is July 27th 2020 and here is your economic and market update from BlackBee. 

Today’s focus:

  • Tit-for-tat between US and China sees stocks fall.
  • PMI figures for Eurozone show a month of expansion in July.
  • US $600 weekly pandemic unemployment payment expired on Friday. 

Concerns that economic recovery in the US may be slowing combined with rising tensions between the US and China saw investors move into safe havens during trading on Friday. The number of jobless claims in the US increased for the first time since March and tensions climbed as China ordered the closing of its US consulate in Chengdu in response to the US ordering the closure of China’s consulate in Houston. The yield on the 5-year US Treasury touched a record low of 0.25% before climbing again and the price of gold rose above $1,900/ounce. The three main indices in the US closed lower on Friday, the S&P500 declined -0.62%, the Nasdaq fell -0.94% and the Dow Jones closed -0.68% lower. All three major indices closed lower for the week. The Euro Stoxx 600 closed -1.7% lower on Friday as the news from China rippled through stocks in Asia and then through Europe.

Last month, European PMIs were questioned over their accuracy as, despite lockdowns being lifted, the readings for June were still below 50. A reading below 50 indicates contraction and a figure above 50 indicates expansion. Although the PMIs improved from the prior month it was questioned how economic activity could continue to contract after lockdowns were lifted. July’s figures show that in the Eurozone the service sector PMI climbed to 55.1, manufacturing sector PMI climbed to 51.1 and the composite PMI rose to 54.8. The figures indicate that during July, businesses experienced a period of expansion. Although the reading is positive news and the survey is a broad measure of economic activity, the main caution with reading the figures is that is cannot measure the pace of the recovery. The survey compares the reporting month to the month prior.

A growing concern for the US economy has been the delay in extending the pandemic emergency unemployment payment. The unemployment level stood at 11.1% in June. The $600 a week payment has provided vital support to households allowing them to meet bill payments and in turn provides a benefit to the wider economy by preventing a large wave of defaults and providing purchasing power to consumers. The worry is that without an extension of this stimulus, a wave of defaults in consumer debt could be triggered. According to the New York Federal Reserve, household debt was a record high of $4.2 trillion in Q1 2020. The pandemic unemployment payment expired on Friday 24th of July. The Trump administration provided a preview of a proposal on Sunday that is set to be unveiled today. US Treasury Secretary Steve Mnuchin ruled out extending the $600 a week level and stated that the proposal would include capping payments at 70% of previous wages. If there is a long delay in passing a new proposal the wave of defaults could be triggered and the so-far muted effect of a dramatic increase in the unemployment rate could be felt.

Best & Worst Performers of Large Cap US Stocks on Friday

Click the image to enlarge

Global Market Update
(as at close of markets 24/07/2020)