Market Monitor – 26 June 2020
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Market Monitor – 26 June 2020

Optimism about the ability of major western nations to bounce back quickly from the coronavirus pandemic was in short supply this week as concerns about a second wave of Covid-19 grew.

By the close of trading on Thursday, the leading indices on both sides of the Atlantic were in the red for the week, weighed down in particular by the ongoing rise in coronavirus infection levels in many parts of the United States. In the wake of last week’s outbreak in Beijing, and with reports of new infection clusters in Germany, investors have been reminded that the pandemic remains a very real threat, in both health and economic terms. Renewed trade tensions between the US and European Union added to nervousness, with the Trump administration saying it had plans to impose extra tariffs on imports from Europe 1.

The US

In the US, the Dow Jones Industrial Average ended Thursday’s session 0.5% down for the week, having suffered significant falls on Wednesday. These were caused by fears that lockdown restrictions seemed likely to be reimposed in a number of southern states due to sharp increases in coronavirus infections. Indeed, on Thursday, Texas governor Greg Abbott announced he was pausing the state’s planned reopening of certain businesses.Perhaps the biggest question mark is around whether areas such as New York City and California – both of which were hit hard in the early stages of the crisis – see significant levels of second-wave outbreaks.

The S&P 500 was likewise 0.5% lower for the week so far. With the likelihood of new restrictions on movement in America, travel firms and airlines were among the main losers on Wall Street this week. However, the week’s losses on both indices were limited by a recovery late on Thursday. This was prompted by gains in the banking sector after the Federal Deposit Insurance Commission said it would loosen restrictions on bank investments and capital requirements – a move viewed as likely to help major lenders cope with coronavirus-related debt write-offs.l Joe Biden – who currently has a strong lead in most polls – may be less business-friendly.

Europe

In Europe, lockdown restrictions continue to ease, but it remains unclear whether a return to relative normality will result in higher infection levels. In London, the FTSE 100 ended Thursday’s session 2.3% down, despite the news that Prime Minister Boris Johnson has permitted a number of businesses in the hospitality sector to reopen on 4 July.

As in the US, travel-related stocks came under pressure from second-wave fears but there was some positive economic data earlier in the week, with manufacturing output in Britain rising this month – although this was very much to be expected as a result of loosened lockdown restrictions. Worryingly, the UK’s services sector appears still to be contracting.

In Germany, the DAX index was down 1.2% for the week by the close of play on Thursday. Investors in Frankfurt were given a boost on Wednesday when the top shareholder in Lufthansa ended weeks of speculation by agreeing to support the €9 billion state rescue package announced last month. Meanwhile, shares in payments firm Wirecard were suspended after its former CEO was arrested on suspicion of falsifying the company’s accounts3.

In France, the CAC 40 was also down 1.2% by Thursday’s close: pandemic-related concerns were offset to some extent by solid manufacturing data earlier in the week.

Shares across Europe were also helped by the news that the European Central Bank had promised to provide euro liquidity to fellow central banks outside the euro area in order to help them deal with Covid-19 fallout, thus helping to avoid “spill-overs of market dysfunctions from other economies to the euro area”4.

19/6/2020
25/6/2020
Change (%)
FTSE 100
6292.6
6147.14
-2.31
FTSE All-share
3484.2
3401.43
-2.38
S&P 500
3097.74
3083.76
-0.45
Dow Jones
25871.46
25745.6
-0.49
DAX
12330.76
12177.87
-1.24
CAC-40
4979.45
4918.58
-1.22
ACWI
526.81
523.75
-0.58

Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 25/6/2020.

26 June 2020
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Market Monitor – 26 June 2020

1 U.S. Targets $3.1 Billion of EU and U.K. Imports for New Tariffs, Bloomberg, 24/6/2020
2 Texas puts reopening on hold in face of new Covid-19 outbreak, Financial Times, 25/6/2020.
3 Ex-Wirecard chief Markus Braun arrested, Financial Times, 23/6/2020.
4 Eurosystem repo facility for central banks (EUREP) – FAQ, ECB, 25/6/2020.

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