Weekly Market Insight

Latest Economic & Market Update 29th June 2020

29th June 2020

Good afternoon, it is 29th June 2020 and here is your economic and market update from BlackBee. 

Today we focus on:

  • Reversal of the plan to reopen economies sees US stocks fall.
  • List of bankruptcies in the US oil industry grows.
  • Savings in Eurozone hits a record high.  

News that Florida and Texas are reversing the reopening of economies due to a rise in cases resulted in US stocks sinking on Friday. Bars in Texas were ordered to close and a limit of 100 people was imposed to combat the rise in cases. In Florida, the sale of alcohol in bars was banned. Investors are worried that the rise in cases will disrupt economic recovery. The S&P500 was down -2.42% and the Dow Jones closed -2.84% lower for the day. Following on from the FED imposing caps on dividends and share buybacks, shares of US banks fell on Friday.
The price of oil has recovered to around $40 a barrel since its collapse below $0 in April. However, for many oil-producing companies, generally, a price of above $45 is needed to be profitable. In the latest development in the oil sector, Chesapeake filed for chapter 11 bankruptcy on Sunday. Chesapeake was a shale pioneer in the US as it rapidly expanded through acquisition with the aim of becoming the largest producer in the US. However, with a mountain of debt and the collapse in oil prices, a bankruptcy filing had been expected. Chesapeake bonds that are maturing this year were trading for 5 cents on the dollar this month. At its highest point in 2008, the company was worth over $35 billion. Despite the recovery in oil prices since they crashed in April, the list of bankruptcies in the oil industry is growing and may get longer as debt becomes due.
In a webinar on Friday, the President of the ECB Christine Lagarde warned that some of the damage caused by the pandemic may be irremediable for the airline, hospitality and entertainment sectors. Ms. Lagarde stated that recovery may be incomplete and that it could be transformational as new industries arise from the crisis. Lagarde’s reasoning for an incomplete recovery is that we could see lower levels of productivity because of less efficient supply chains. The ECB also released figures on Friday that showed that from February until the end of May this year, the rate at which Eurozone households saved money has increased substantially, hitting a record high of €7.3 trillion – a rise of €214bn during this period. An increase in savings would have been expected during the crisis with households saving as a precaution but also as a result of lockdown. As the economy reopens we will learn more about consumer behaviour and the rate the spending increases. Businesses, especially those with small margins, will be reliant on consumer spending returning to normal levels.

Best & Worst Performers of Large Cap Stocks on Wednesday
Click the image to enlarge

Global Market Update
(as at close of markets 26/06/2020)