Market Update: Hopes for a vaccine help to push shares higher

Market Update: Hopes for a vaccine help to push shares higher

20th July 2020

Last Week - Key Takeaways

Markets: Shares climb as earnings season starts

  • Global shares ended the week higher thanks to reports of successful trials of coronavirus vaccines by two pharmaceutical companies, the prospect of further support measures from the Federal Reserve (US central bank) and an encouraging start to earnings season from US banks (see ‘Corporate profits’);
  • However, new infections in several US states and the reintroduction of lockdown restrictions hovered over the markets, while the reaction by Chinese shares to the country’s return economic growth in the second quarter caused concern among investors (see ‘China’).
  • Omnis view: Developments associated with the recovery from the pandemic continue to dominate the markets, as investors wait for governments and central banks to announce additional support measures. Meanwhile, corporate earnings will be closely monitored over the coming weeks, not just second quarter results (which are expected to be poor) but also the outlook for the rest of the year.

UK: Economic recovery disappoints in May

EU: Interest rates on hold as talks continue over rescue package

  • The European Central Bank kept interest rates on hold and warned considerable uncertainty would hinder the region’s economic recovery;
  • Talks continued between EU leaders about the proposed package of support measures worth €750 billion to help member states overcome the economic impact of the coronavirus crisis.
  • Omnis view: There have been signs in the last few weeks that the EU economy is recovering from lockdown as retail sales have picked up and job losses have slowed. The outlook should improve once leaders come to an agreement over the rescue package.

Japan: Central bank decides against changing interest rates

  • The Bank of Japan (BOJ) also met last week and left interest rates unchanged but lowered its forecast for economic growth for the year to March 2021.
  • Omnis view: The BOJ pledged to take additional measures if necessary, which should reassure the markets as central bank support has played a key role in the rally since the correction in February and March.

China: Shoppers reluctant to resume spending

  • Chinese shares fell as concerns about the slow recovery in consumer spending overshadowed the country’s return to economic growth in the second quarter of the year.
  • Omnis view: The return to growth is encouraging for the rest of the world as China was the first country to start easing lockdown restrictions, although sluggish retail sales suggest shoppers are still reluctant to go out and spend their money.

Corporate earnings: US banks report strong second quarter results

LOOKING AHEAD - TALKING POINTS

Economic data

  • Tuesday- Japanese inflation rate in June;
  • Friday- UK consumer spending in June; early indicators of business activity in the UK, the US and Europe in July.

Corporate profits

  • Tesla, IBM, Twitter and Microsoft are among the companies reporting profits this week.

 

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This update reflects Omnis’ view at the time of writing and is subject to change.

The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your Openwork financial adviser. Omnis is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given.