In July, we saw global tensions rise, particularly between both China and the US and China and the UK. World stock markets have experienced a varied month with some performing surprisingly well and others experiencing a further downturn.
Across the globe there is an expectation that 250m people are set to lose their jobs this year. The effects of Covid-19 look to have a continuing impact on the global economy, accelerating changes that have been coming for some time.
Let’s look at the market news from July…
UK
This past month, Chancellor Rishi Sunak released his Summer Statement regarding the continued economic fight against Covid-19. As the furlough scheme gradually comes to an end, we are seeing continued job losses with around 12,000 jobs being lost over a two day period at the beginning of the month. Current indications are that pubs and restaurants have already lost around £30bn turnover.
The Bank of England suggests that the economy has begun to recover in an ‘uneven’ fashion, but that some sectors will continue to struggle for some time. Among the contributing factors to this, car production in the UK has slumped to its lowest levels since 1954 and there are suggestions that some organisations across sectors have been kept artificially afloat by government funding.
The UK’s FTSE-100 index of leading shares fell in the month. It was the worst performing of all the markets on which we report, dropping 4% in July to end the month at 5,898. That said, with the dollar having its worst month for ten years, the pound rose sharply against it and ended the month up 6%, trading at $1.3098.
Brexit & Trade Deals
With only five months to go until the UK officially leaves the European Union, it looks increasingly likely that there will be no formal deal in place. There are reports that both major trade deals – with the EU and the US – are ‘expected to miss their deadlines and not be concluded by the end of the year.’
Europe
On 17th July, European leaders gathered to discuss a post-Covid-19 recovery deal to boost the European economy. Although these talks carried on to a fourth day, objections were eventually overcome and a deal was reached. Despite some seeing this as an opportunity for greater European unity, many suggest that this will contribute to the widening of the rift between northern and southern voices.
The German economy saw its greatest decline on record in the second quarter, falling by 10.1%. In particular, the German car industry saw a stark downturn. German car production has fallen 44% in the first half of the year and approximately 100,000 jobs seem to be at risk.
On the stock markets, it was a very quiet month for the German DAX index which rose just two points in the month to close June at 12,313. The French market fared less well, falling by 3% to end the month at 4,784.
US
Despite the month starting strongly in the US with record jobs growth in June, second quarter figures overshadowed the impact of this. The US economy suffered its worst ever fall during that quarter, with GDP falling 32.9%
At the end of the month, Republicans in the Senate proposed spending a further $1tn (£769bn) to help fix the ‘hole,’ with proposals including $100bn (£77bn) for schools and a stimulus payment of $1,200 (£923) to most Americans. The US has already spent more than $2.4tn (£1.85tn) in virus relief measures.
In other news, Tesla overtook Toyota to become the world’s most valuable car maker as its shares rose again. The US stock market duly took its lead from Tesla rather than the bad economic news. The Dow Jones index was up 2% in July to 26,428 while the more broadly based S&P500 index rose 6% to 3,271.
Far East
In the Far East, July was marked by two companies impacted by the effects of Covid-19 lockdowns. In Japan, car manufacturer Nissan suffered record losses. Sales slumped by 48% during the April to June period. It estimates the yearly loss at £3.5bn with shares falling 10%. Meanwhile, in South Korea, Samsung has seen significant increases in sales with profits up 23% on last year. This upswing has been created by increased demand due to remote working and home schooling.
The Japanese economy has headed into recession. Household spending has seen the sharpest decline since comparable data began in 2001. Similarly, South Korea has also seen its economy move into a recession. There, exports are at their lowest level since 1963.
The tensions surrounding China don’t appear to be reflected in the Shanghai Composite index which rose 11% in the month to close July at 3,310. The South Korean market also defied the bad news, climbing 7% to 2,249. The Hong Kong market posted a more modest 1% rise, closing at 24,595 while Japan’s Nikkei Dow index was down 3% to 21,710.
Emerging markets
It was a quiet month for news in the emerging markets we cover in the market commentary. The most noteworthy event occurred in Russia, where Vladimir Putin effectively became ‘President for Life.’
In a referendum – held over seven days because of Covid-19 – nearly 80% of voters apparently backed an amendment to the constitution which will allow Mr Putin to run for two more terms as President. He had been due to stand down in 2024, but will now effectively remain President until 2036, when he will be 83.
July was a good month for Mr Putin and a very good month for the three major emerging markets on which we report. The Indian stock market rose 8% to 37,606 and Brazil’s market was up by the same percentage to 102,912. The Russian stock market rose 6% in the month, ending July at 2,912.
We hope you have a great August, whether that means exploring holiday options or returning to the office. Please get in touch if you have any further questions around this commentary.