Weekly Market Insight

Latest Economic & Market Update 8th July 2020

08th July 2020

Good afternoon, it is 8th July 2020 and here is your economic and market update from BlackBee. 

Today’s focus:

  • Five-day rally in US stocks pauses.
  • Longer than anticipated lockdowns lead European Commission to revise GDP forecasts downwards.
  • Governments across the world face issue of phasing out wage subsidy schemes.

Stocks in Europe and the US fell yesterday as investors weighed concerns over the increasing number of coronavirus cases globally and the length of the recovery ahead of the world economy. Airline and hotel stocks suffered the biggest losses. All three major indices in the US declined putting an end to the five-day rally. The Nasdaq fared the best out of the three indices, a consistent theme throughout the crisis, only declining -0.86%. The Stoxx Europe 600 closed -0.61% lower. Gold continued to climb and reached $1,794.86 yesterday, as it edges closer to the $1,800 mark. 

Due to a surge in Covid-19 cases in some countries, lockdown has been reinstated showing that without a vaccine, it will be a persistent problem, posing many threats to the recovery of economies. Local lockdowns are now becoming common and in countries like the US despite lockdowns not being reinstated, businesses have reversed reopening plans. The European Commission announced yesterday that due to lockdowns being longer than anticipated, there would be a significantly deeper recession for many countries in the EU than originally predicted. The European Commission now forecast that GDP in the EU will contract -8.3%, much lower than original forecasts of -7.4%. Economic recovery in the EU has also been revised lower. Originally forecast to grow by 6.1% in 2021, the European Commission now forecasts growth of 5.8% in the EU in 2021. Recovery and effects of the crisis will not be spread evenly according to the European Commission. Italy and Spain are expected to be the worst-hit countries this year with France expected to experience the strongest rebound in 2021.

Governments are facing the issue of phasing out job retention schemes and emergency unemployment support. When the retention schemes are phased out, it will need to be done gradually as to not trigger an increase in long term unemployment. In Ireland, the Minister for Finance Paschal Donohoe stated that the temporary wage subsidy scheme will not come to an abrupt end. It is currently keeping over 400,000 people in jobs. Likewise, if emergency pandemic unemployment support is suddenly stopped, this could cause severe knock-on effects to households regarding spending power and ability to meet bills. An abrupt end to emergency unemployment support could ultimately hurt the economy. The timing and pace of these schemes’ rollbacks are vitally important. Yesterday the OECD stated that governments should now start scaling back the wage subsidy schemes to encourage workers to move out of shrinking sectors. Regarding emergency unemployment support, they suggest that some countries should extend as to not significantly lower household income with the risk of a potential second wave. According to the OECD, even in an optimistic scenario, unemployment among OECD countries is likely to reach 9.4% in Q4 2020. Phasing back the wage subsidy schemes now may be too early in many countries where economic activity is still well below pre-crisis levels.

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

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