Market Update – 24th July 2020.

There was little change in European equity markets yesterday as the FTSE 100, and most other equity markets on the continent, closed practically unchanged. However, a pick-up in US jobless claims for the first time since March, weighed on US equity markets which saw the S&P 500 close down 1.23%.

With coronavirus cases picking up in many US states, it is forcing businesses to close once again and resulted in US Initial jobless claims increasing to 1.42m last week, up 109,000 from the week prior. Whilst the pick-up in claims indicates a pause in the US economic recovery, there is nothing to suggest that the US cannot regain control of the virus by adopting practices which appear effective in many other counties. Donald Trump resumed daily coronavirus briefings this week whilst for the first time he also advocated the use of face masks.

The US jobless data is a sombre reminder that the coronavirus has not gone away and until a vaccine is found, equity markets will remain volatile, taking two steps forward and one step back. However, with so many institutions across the globe working towards a vaccine, and the significant advances in medicine over recent decades, we are confident a cure will be found and there have already been several promising reports from vaccine trials.

Overnight Asian equity markets took their lead from the US and closed in negative territory, European equity markets have followed suit today despite some encouraging economic data. PMI (Purchasing Managers’ Index) data released this morning beat expectations across the board, with the Eurozone composite PMI registering its strongest reading since June 2018 coming in at 54.8, this was led by services coming in at 55.1. Whilst beating expectations is positive, the figures themselves are encouraging as readings above 50 indicate economic expansion.

UK retail sales data for June was released this morning and also came in better than expected, thanks to the gradual re-opening of the UK economy. There were improvements in most categories, whist textile, clothing and footwear were the standouts, growing at 70.2%! Whilst UK retailers enjoyed some respite in June, in his speech yesterday, Jonathan Haskel (a member of the Bank of England’s monetary policy committee) expressed concerns the UK economy may struggle as consumers worry about unemployment, especially once the furlough program ends. This to us suggests it is only a matter of time before further measures to support the economy are announced, and reinforces our view that we are likely to see further cuts in UK interest rates.

Peter Quayle, Fund Manager