Weekly Market Insight

Latest Economic & Market Update 7th July 2020

07th July 2020

Good afternoon, it is 7th July 2020 and here is your economic and market update from BlackBee. 

Today’s focus:

  • Shanghai Composite Index leads global indices higher.
  • State media in China encourage citizens to buy stocks.
  • Eurostat figures show record increase in retail sales for Eurozone.

Following a front-page article in the China Securities Times, the Shanghai Composite Index recorded its highest daily increase in five years as the index closed the day over 5.7% higher. The state media encouraged citizens to buy stocks to experience the “wealth effect of the capital markets” and that fostering a “healthy bull market” is now more important than ever to the economy. The rise in the Shanghai Composite Index led global indices higher. The Euro Stoxx 600 closed nearly 1.5% higher with the Dow Jones climbing 1.78% and the S&P500 climbing 1.59%. The Nasdaq closed at an all-time high of $10,433.65, increasing over 2.2% for the day. Following the agreement to buy food delivery company Postmates in an all-stock deal worth $2.65 billion, Uber closed 6% higher. Amazon shares broke the $3,000 mark for the first time, closing at $3,057.04. Tesla has continued its now 5-day rally as the stock is up nearly 43% since the 26th June.

Following the move by state media in China to publish an article encouraging citizens to buY stocks, comparisons are being made to the bubble burst in 2015. In the last 5 days, the CSI 300 has gained 14.3% and momentum indicators such as Relative Strength Index which is measuring 88, are up at similar levels last seen in December 2014. Increasing participation from retail investors, measured through daily turnover in brokerages, has also exceeded levels last seen before the bubble burst. In 2014, messages from state media influenced a revival in the stock market which led to a debt-fuelled bubble. The result was a loss of $5 trillion in value. Although there are similarities, there are a few major differences such as the leverage levels being half of what they were in 2015 and lower starting point for equity valuations. 

Figures released by Eurostat on Monday show that retail sales in the Eurozone rose by 17.8% in May, a record monthly increase since records began in 1999. In comparison to the same period last year, retail sales were down 5.1% showing that although the rush of consumers back is positive, there is still quite a gap to full recovery. During the lockdown, retail sales had contracted -10.6% in March and -12.1% in April. Figures released at the end of June by the ECB have shown us that consumers have been saving during the crisis. Now that the Eurozone economy is experiencing a sharp pickup in consumer spending, a continued increase in retail sales should aid economic recovery.

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

Global Market Update
(as at close of markets 06/07/2020)