All eyes on American numbers

Architas podcast for Logic Wealth Planning in Heywood

Despite ongoing tensions with China, markets in the USA have remained steady. That could change as GDP figures are expected this week. The very latest financial information podcast from one of our partners, Architas…

In brief

  • Last week, US markets were relatively flat, dropping 0.3% despite the ramping up of the tensions with China. BlackRock published a stewardship report highlighting an improving alignment with investor initiatives.
  • However, this was offset by BlackRock’s mixed record on supporting climate-related shareholder resolutions, and a relatively small proportion of votes against management.
  • This week, the US will report on its GDP (gross domestic product) number and markets are expecting that it could decline as much as 34% from last quarter.

Our view

What were the main events in US markets last week?

Last week, US markets were relatively flat with the S&P 500 index down just 0.3% despite the ramping up of the tensions with China, which doesn’t bode well for markets. On the data front there were a number of surprises. The first was the unemployment number which increased for the first time since March. But on the positive side, sales of existing homes (purchases of previously occupied homes), rebounded strongly from pandemic-fuelled lows and new home sales reached a 13-year-high. This was boosted by record low mortgage rates that they have in the states at the moment. A mixture of positive and negative news last week.

What’s been happening in Europe?

It was a mixed week. In the early part of the week, news that several vaccine trials are showing promise was a boost to markets. But then the back of the week was less positive with mixed European corporate earnings and concern over surging Covid-19 cases in the US. On the week Europe was down 1.3% against a drop of 0.5% in the global index. There was a lot of data out last week. Key was the agreement of the recovery package, which has been on the cards for a long time. It has been significantly delayed versus other single countries around the world with the amount going to grants, out of the EUR 750 billion rescue package, being a sticking point. Initially, the package was due to be split EUR 500 billion in grants and giveaways and the remainder 250 billion in loans. A group called the frugal four, led by the Netherlands weren’t happy, and they have delayed the agreement. But a compromise was reached resulting in more of an even split EUR 390 billion given away in grants and EUR 360 billion in loans, which was agreed upon, which provided some positive news.

What was the main responsible investing news last week?

BlackRock published a stewardship report last week covering activities from June 2019 to June this year, and this is its drive to improve transparency around voting and engagement, something that BlackRock has been criticised for in the past. And the headline takeaways from this are BlackRock has improving alignment with investor initiatives, including recommendations of the ‘task force on climate-related financial disclosures’ or TCFD and Climate Action, 100+, which is a collaborative engagement effort from various large investors.

However, this was offset by a mixed record on supporting climate-related shareholder resolutions, and also a relatively small proportion of votes against management. Out of the 244 companies flagged by BlackRock as making insufficient progress on climate issues, they only took voting action against 53 companies or 22% of those highlighted as being on watch. Some improvement, but more room for improvement as well.

What’s happening in the week ahead?

In the US, we have a couple of data points. Probably the most important will be the US GDP figures for Q2. Markets are expecting the GDP (gross domestic product) number that measures the size of a country’s economy could decline as much as 34% from last quarter. We also have the US Federal Reserve meeting where they will be deciding on whether to change interest rates. Although, we’re not expecting to see any change.

In Europe, the main data releases will be GDP numbers for most of the major economies, including France and Germany. Similar to the US, there is an expectation of a significant drop quarter on quarter. The expectation is that it will fall by 11.2%. Given what has happened in European economies over that period from March, this number could be slightly less. So there’s potential for this to be slightly outperforming expectation but still a very negative environment that existed.

What is next for investors?

  • Markets will look for signs of increasing Covid-19 infection rates in the US, which could upset stock markets.
  • Elsewhere, gold and government bonds should continue to act as relative safe-haven assets.
  • In the meantime, patience and a long-term view might be needed while waiting for a revival of economic activity and asset prices.

Listen to the latest podcast HERE

Logic Wealth Planning provides independent financial advice in Manchester, Bury, Rochdale, Cheshire and the surrounding area, but not limited to the region.