Big week for the markets

Logic Weekly Podcast, 21 July

Continued positivity in US markets, encouraging news about vaccine trials, Europe’s €750 billion stimulus package and earnings reports due from Microsoft, Tesla and Amazon… it’s all covered in the latest podcast. Read or listen here.

In brief

  • The US market was up just over 1% last week, mainly driven by some positive news on vaccine trials. Oxford University announced that they’re working on some trials in conjunction with AstraZeneca, with positive news on antibody results and T-cell results which could lead to prolonged immunity.
  • There continues to be uncertainty around the €750 billion stimulus package in Europe to help economies recover from the Covid-19 crisis. A group named the ‘frugal four’ (Sweden, Denmark, Austria and the Netherlands) have refused to allow €500 billion to be offered as grants to countries hardest hit by the effects of Covid-19.
  • There are a number of company earnings coming out in the US this week with some notable companies like Microsoft, Tesla and Amazon. There will be a keen focus on what these companies have to say about the macro environment and what to expect going forward.

Our view

What has been happening with US markets?

The US market was up just over 1% last week, mainly driven by some positive news on vaccine trials. Oxford University announced that they’re working on some trials in conjunction with AstraZeneca, with positive news on antibody results and T-cell results which could lead to prolonged immunity.

This benefited value sectors that have been beaten down, like industrials. If we did see a vaccine come through, it would mean a lot of industries could get back to full operational capacity. Indeed the industrials sector had a strong week: up over 5%. So last week was a value week with lots of hope being pinned to a vaccine.

What’s been happening in Europe?

It was a reasonably positive week in Europe. It outperformed the global market by about 0.5%. There was continued Brexit discussion, with further clarity on what the trade deal is going to be in the long term. In the UK, the GDP (gross domestic product) number that measures the size of a country’s economy was down 20.4% year-on-year. This takes into account the massive downturn the Covid-19 crisis has caused.

Additionally, there continues to be uncertainty around the stimulus package in Europe, the €750 billion, to help economies recover from the Covid-19 crisis. A group named the ‘frugal four’ (Sweden, Denmark, Austria and the Netherlands) have refused to allow €500 billion to be offered as grants to countries hardest hit by the effects of Covid-19. They are contesting how much of the overall recovery fund is allocated as grants and how much is allocated as loans. So markets remain quite volatile in Europe.

What is the latest sustainable investing news?

AXA IM announced that it will adopt a tougher stance on board diversity from next year. It’s pledged to vote against the head of the nomination committee or the signing off of company accounts where female directors make up less than one third of boards. And that’s for developed market holdings. In emerging markets and Japan, it’s slightly different, and AXA IM will vote against companies where women do not hold at least one seat or make up 10% of larger boards.

Boohoo, a clothing company, came under fire a couple of weekends ago after an undercover investigation by the Times revealed workers at a Leicester factory were being paid as little as £3.50 per hour. One of Boohoo’s biggest shareholders has dumped almost all its investment in the fashion group over its response to slave sweatshop allegations. Standard Life Aberdeen said the company’s reaction to the scandal was ‘inadequate’. The Boohoo share price is down just over 40% since the story broke earlier in July.

What are the upcoming events in the markets this week?

There are a number of company earnings coming out in the US this week with some notable companies like Microsoft, Tesla and Amazon. There will be a keen focus on what these companies have to say about the macro environment and what to expect going forward.

Otherwise, in terms of data, it’s going to be a light week for the US. Elsewhere the PMI (Purchasing Managers Index) business sentiment indicator will be released for a number of European countries. This will provide more insight on the strength of the post-lockdown economic rebound in July. But, as ever, the market will continue to focus on Covid-19 cases, as we are seeing a pick-up, particularly in areas like the US and India.

What is next for investors?

  • Markets will look for signs of increasing coronavirus infection rates in the US, which could upset stock markets. Elsewhere, gold and government bonds should continue to act as relative safe-haven assets.
  • Markets continue their focus on US earnings over the next few weeks and Brexit is also back in the news.
  • 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.