Week in Review: Covid-19 Resurgence Fears Dampen Sentiment

Global equities suffered their worst weekly decline in almost three months as fears of a second wave of infections along with the U.S. Federal Reserve’s economic outlook dampened investor sentiment.

With economies slowly reopening and people making their way back to work, there have been growing fears of a resurgence of coronavirus infections. In the U.S., reports of increasing numbers of cases and hospitalisations in Arizona, Texas, Florida and several other states weighed on markets this week. There are now more than 2 million confirmed Covid-19 infections in the U.S., representing more than one-quarter of all confirmed infections in the world. Treasury Secretary Steve Mnuchin said there shouldn’t be a second shutdown even if there is a second wave of infections. However, this decision lies with the governors of each State, not the White House.

The Federal Reserve indicated that rates are likely to remain near zero until 2022 and issued a cautious economic outlook, pledging to maintain at least the current pace of asset purchases in its bid to keep the U.S. economy from falling further. At his post-meeting press conference, Federal Reserve Chairman Powell, painted a fairly bleak assessment of the pace of the recovery in the coming months, predicting that the U.S. unemployment rate would end 2020 at 9.3% and warning of permanent job losses.

The World Bank, in its updated Global Economic Prospects report, indicated that worldwide GDP will contract 5.2% in 2020, despite the unprecedented fiscal and monetary policy support that governments around the world have been rolling out. The Organization for Economic Cooperation and Development (OECD) expects global GDP to contract 6.0% in 2020 according to its latest forecast.

Gross domestic product (GDP) in the UK fell by a record 20.4% in April. Bank of England (BoE) Governor Andrew Bailey said that there were some signs of an economic pickup as the lockdown restrictions began lifting in May, but he warned that there is still likely to be long-term economic damage. Meanwhile, ECB Vice President, Luis de Guindos, stated that the eurozone economy appeared to have bottomed out in mid-April. GDP eased by 3.6% (quarter-on-quarter) in 1Q20, lower than market expectations of a fall of 3.8%.

Turkey continues to increase control over foreign exchange (FX) transactions in an attempt to reduce volatility in its currency. From next week, Turkey’s central bank will receive weekly reports from companies with FX borrowings in excess of USD 15 million. These companies will need to report their balances in line with other requirements. These measures are on top of a recent increase in FX transaction taxes, the imposition of an asset ratio, and a limitation on local asset managers’ exposure to foreign currencies.

For the week, global equity markets were sharply lower. In the U.S., the Dow Jones (-5.55%), S&P 500 (-4.78%) and Nasdaq (-2.30) Indices all ended the week in negative territory. Similarly, the Euro Stoxx 50 (-6.81%), FTSE 100 (-5.85%) and Nikkei 225 Index (-2.44%) were all negative, with the Shanghai Composite Index (-0.38%) being relatively more resilient.

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Market Moves of the Week

South African business confidence plunged to the lowest level in 45 years due to the impact of the coronavirus pandemic.

The JSE All Share Index ended the week down -1.98%, with industrials (-1.25%), financials (-6.04%) and resources (-1.16%) all weaker.

Market Moves - 14 June 2020
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Chart of the Week

There are months until the polls and things could easily still change, but the view is solidifying that President Trump has mishandled the disturbances of the last few weeks and with it, his second term presidential ambitions appear to be “dwindling”. According to Predictit Market, the November race has started to break dramatically in the Democrats’ favour over the last few days for both the presidency and for control of the Senate.

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