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MARKET UPDATE: EVIDENCE OF LOCKDOWN’S IMPACT ON US AND EU ECONOMIES WEIGHS ON SHARES

LAST WEEK – KEY TAKEAWAYS

MARKETS: SHARES FALL AS GROWTH DROPS IN US AND EU

  • Global shares fell towards the end of the week as evidence emerged of the toll taken by the coronavirus pandemic on the US and EU economies in the second quarter (See US and Europe sections);
  • However, US shares ended the week slightly higher after encouraging results from technology firms announcing profits for the second quarter (See Corporate profits section);
  • Meanwhile, the US dollar weakened against the pound and the euro due to concerns about the country’s economic recovery, the rate of new infections and political uncertainty ahead of the US presidential election.
  • Omnis view: While the falls in growth were extreme, they were no worse than expected as both the US and EU spent much of the second quarter in lockdown. Nonetheless, demand for safe haven assets such as government bonds rose.

US: ECONOMY CONTRACTS AT RECORD PACE

EU: ECONOMIC GROWTH HITS 25 YEAR LOW

CORPORATE EARNINGS: STRONG SHOWING FROM TECHNOLOGY SECTOR

  • Shares rose in Facebook, Amazon and Apple as they beat expectations when reporting company profits for the second quarter of the year;
  • Google’s parent company Alphabet also exceeded forecasts, but its shares fell due to a decline in advertising revenue.
  • Omnis view: Tech firms have been one of the driving forces behind the markets over the past few months (along with government and central bank support) and helped the S&P500 rally at the end of the week following the disappointing news about the economy. However, overall earnings for US shares are still expected to fall by 35.7% according to research firm FactSet.

LOOKING AHEAD – TALKING POINTS

ECONOMIC DATA

  • Wednesday- Final estimates of UK, EU and US business activity in July;
  • Friday- Chinese imports, exports and balance of trade in July; US non-farm payrolls (job creation) in July.

CENTRAL BANKS

  • Thursday- Bank of England interest rate decision.