U.S. equities ended mostly higher for the week as big tech held the earnings spotlight. On Wednesday, a congressional antitrust panel questioned the chief executives of the biggest tech companies around their size, power and business practices. The industry leaders (Jeff Bezos of Amazon, Tim Cook of Apple, Mark Zuckerberg of Facebook and Sundar Pichai of Alphabet) were questioned as part of a broader inquiry into the dominance of the tech giants.
A day after their questioning by the congressional antitrust subcommittee saw Amazon, Apple, Alphabet and Facebook all report healthy quarterly results. Amazon crushed earnings estimates — $10.30 a share versus estimates of $1.48 a share — after 40% revenue growth while Facebook nearly doubled its profit and beat expectations on earnings, revenue and monthly active users.
Investors also kept a close eye on congressional negotiations over a fifth coronavirus relief bill. Republicans and democrats remain divided on the relief bill with Republican negotiators offering to extend the present $600 weekly unemployment benefits (which is set to expire) while democrats are looking for a broader package totalling about $3 trillion in additional spending.
U.S. gross domestic product plunged by a record 32.9% in the second quarter, data showed Thursday. Economists surveyed by Dow Jones had expected a 34.7% decline. The plunge in economic activity from April to June was one of the largest on record.
The euro zone economy contracted by 12.1% in the second quarter, the worst reading since the region began tracking the data in 1995. Its largest economies, including Germany, Italy, France and Spain, contracted by double digits during the period due to the strict lockdown measures.
The Federal Reserve said Wednesday it would keep its benchmark interest rate near zero for as long as it takes until the economy starts to recover from the coronavirus crisis. In addition to holding rates near rock bottom, the central bank also said it will extend its lending and credit initiatives until at least the end of the year.
While U.S. equities ended mostly higher over the week (S&P 500 +1.73% and Nasdaq +3.69%), equities in Europe and Asia fell on concerns around the strength of the economic recovery due to a resurgence in coronavirus infections, continued U.S.-China tensions, and generally downbeat corporate earnings. The Euro Stoxx 50 (-4.12%), FTSE 100 (-3.69%) and Nikkei 225 Index (-4.58%) were all negative for the week, while the Shanghai Composite Index (+3.54%) was marginally stronger on positive economic data.
Market Moves of the Week
South Africa lost more in tax revenue in the first three-and-half months of its fiscal year than it borrowed from the International Monetary Fund (IMF) and the African Development Bank (AfDB) combined. The initial lockdown was one of the most stringent in the world and while some restrictions have since been eased, many businesses have closed and the 30.1% unemployment rate is set to worsen, further weighing on tax collections.
South Africa’s confirmed cases of COVID-19 crossed half a million, the health ministry said on Saturday. As restrictions have eased, infections have spiked over the last two months. However, the daily increase in infections appears to be stabilising, particularly in the worst-hit Western Cape, Gauteng and Eastern Cape provinces.
The rand fell to its worst level in three weeks on Friday, breaking above R17/$. The JSE all share ended the week slightly positive (+ 0.14%) while the gold price gained 3.75% over the week to close at $1,971/oz.
Chart of the Week
As the following chart shows, Amazon grew its revenue by more than 30 percent year-over-year in the first six months of 2020, with a record quarterly profit in Q2. While Amazon's success makes sense given the switch to more online shopping during lockdown, the resilience and strength shown in the business models of the other tech giants namely Apple, Google and Facebook also surprised to the upside when they reported healthy quarterly results this week.
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