Markets around the world have recovered some of last week’s severe losses, but investors remain nervous about the direction the Covid-19 pandemic is likely to take in the coming weeks.
Underpinning this nervousness have been reports from the United States that a number of areas, in the south in particular, are seeing infection rates rise as lockdown restrictions are eased1 – as well as news from China that a serious new outbreak has been recorded in Beijing2.
Meanwhile, central banks in Europe, Asia and the US have continued to provide reassurance as well as financial aid to markets: this week at least, this has served to calm fears over the continuing spread of coronavirus.
On Monday, the Fed in Washington said it would start to buy debt issued by US companies in order to support the US economy3, while a day later, the Bank of Japan promised to deliver business loans worth $1 trillion to struggling firms.
On Thursday, the Bank of England said it would increase its bond-buying scheme by £100 billion4, although this was somewhat less than analysts had expected.
On Wall Street, the Dow Jones Industrial Average closed Thursday’s session up 1.9% for the week, with the S&P 500 up 2.4%. The Fed’s renewed support played a significant role in driving values higher early in the week, and there was also positive news in terms of the latest US retail sales data which showed a major rebound in May following April’s lockdown-induced slump.
But any gains have been held back by higher-than-expected American unemployment figures as well as growing concerns over rising coronavirus infection rates in southern and southwestern states.
Another factor starting to cause disquiet among US investors is the diminishing likelihood of Trump being re-elected in November: his economic policies have been largely favourable for American corporations, and there are concerns that his Democrat rival Joe Biden – who currently has a strong lead in most polls – may be less business-friendly.
Europe and the UK
In the UK, the FTSE 100 had gained almost 2% by the close of Thursday’s trading: investors are still waiting to see whether the relaxation of lockdown restrictions around Britain lead to higher Covid-19 infection rates. In England, non-essential retailers were allowed to open, providing a welcome boost for the sector.
Shares in travel companies such as British Airways owner IAG and airline easyJet rose early in the week on hopes that Brits may yet be able to salvage their summer holidays. But there remains considerable uncertainty over whether the most popular European destinations such as Spain and Greece will welcome visitors from the UK in the next few months unless infection levels fall further.
In Germany, the DAX finished Thursday’s session up 2.8% for the week, with strong gains in the construction and retail sectors. The week’s biggest story, however, was the news that auditors had uncovered a €1.9 billion hole in the accounts of digital payments business Wirecard5 : the company’s shares collapsed by almost two-thirds as a result.
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 18/6/2020.