Markets and Key Events
Impasse between the White House and US Congress as to further stimulus remains
Improving economic data came up against an impasse between the White House and US Congress this week, as the two sides once again failed to make any progress on agreeing a new economic stimulus package to support the millions of Americans out of work as a result of the coronavirus lockdowns earlier in the year. Against this backdrop, the US equity market just fell short from hitting its all-time high reached towards the end of February. The shine on markets was further taken off, as the UK government announced late on Thursday that a quarantine of 14 days would be applied to anyone returning from France or the Netherlands after 4am this coming Saturday, hitting travel industry stocks hard on Friday. The share price of IAG, British Airways’ parent company, fell by almost 12% from its intra week high, having been as much as 15% higher earlier in the week.
However, economic data broadly remains ahead of expectations
As of 12pm London time on Friday, the US equity market had risen 0.7% over the week, with technology stocks having advanced by 0.3%. European equities were 1.1% higher, helped by better than expected German economic data earlier in the week, with the ZEW index of economic sentiment coming in at levels not seen since 2004. UK equities rose by 0.8% in the week where it was confirmed that second quarter GDP had fallen by a massive 20.4%, making the UK economy one of the worst impacted. However, data released for the month of July in the UK showed a stronger than forecast rebound, with GDP rising by 8.7% for July. Japanese equities climbed by 5.0%, having their best week since May, whilst Australian stocks rose 2.0%. Emerging markets increased by 0.6%, held back by Chinese economic data that, although still improving, is doing so at a diminishing rate, raising concerns over a moderation in China’s recovery.
Government bond yields rise as economic data continues to recover
Government bond yields rose this week (yields move inversely to prices) as investors switched out of haven assets against a backdrop of improving economic data and stronger than forecast inflation data. Treasury prices were further pressured by two massive auctions. $38bn of new 10-year US Treasury bonds were auctioned on Tuesday, achieving a yield of 0.677%, whilst a sale of $26bn of 30-year debt on Thursday struggled to get away, finally going for a yield of 1.40%, up from 1.33% in the previous auction. 10-year German bund yields also rose over the week, currently trading at minus 0.42% and UK Gilts currently trading at 0.25%, with prices also having sold off over the week.
Gold suffers its steepest one-day selloff in 7 years
Gold and silver suffered their worst one-day loss in seven and twelve years respectively, with gold falling by almost 9% between its intraweek high and low point, before recovering to trade at $1,959 an ounce. Whilst silver, which is much more volatile, sold off by almost 20% between its intraweek high and low. Markets have, up until now, assumed that there will be no US rate rises for some time to come. However, a combination of economic data exceeding forecasts, countries learning to live with Covid19 and the continued hopes of a vaccine by the end of this year, with Russia just this week authorising a vaccine for use beyond clinical trials, show that investors are beginning to reappraise this view.
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