Fisher Investments recaps the biggest market, political and economic news from last week, including US, UK, eurozone and Japanese July Purchasing Managers Index (PMI) readings, US July Leading Economic Index (LEI) details, and UK June retail sales figures.
Global markets fell as US-China diplomatic tensions returned to the spotlight. We believe heightened US-China rhetoric may likely continue through November as US politicians posture in advance of the election. However, COVID-related economic concerns likely constrain how far the US and China are willing to escalate their actions.
US data were light. The July Markit Services Flash Purchasing Managers’ Index (PMI) rose to 49.6, narrowly missing expectations, while the July Markit Manufacturing Flash PMI increased to 51.3—in-line with forecasts. Readings above 50 indicate expansion. The Conference Board’s US Leading Economic Index (LEI) increased 2.0% m/m in June. There were 1.4 million initial jobless claims for the week ending July 18—slightly higher than the prior week and missing consensus estimates. While this marks the first increase in initial jobless claims since March, the amount of claims remains well below April and May’s levels. US congressional leaders continued discussing another potential round of COVID-19 relief for businesses and individuals. Some investors may worry about the economic impact of current support programs expiring. We understand where the fear is coming from and can certainly sympathize. However, in our view, while government spending can help speed a recovery, a fiscal response isn’t essential for a recovery and bull market. For more, please see our 7/22/2020 commentary, “Considering the CARES Act ‘Cliffs’.”
In the eurozone, the July Markit Services Flash PMI rose to 55.1 while the Markit Manufacturing Flash PMI inched higher to 51.1—both beating expectations. Meanwhile, EU leaders agreed on a $2.06 trillion spending package aimed at helping member states mitigate the economic downturn tied to COVID-19 containment policies. In our view, similar to the US, Europe doesn’t need massive government spending to recover from the recession that began in the first quarter. Continuing the reopening process, no matter how gradually, should suffice. For more, please see our 7/21/2020 article, “Unpacking the EU’s New COVID Fiscal Response.” In the UK, the preliminary July Markit/CIPS Services and Manufacturing PMIs rose to 56.6 and 53.6, respectively. While June retail sales contracted -1.6% y/y, they fell less than the -4% y/y analysts had forecasted and grew 13.9% m/m—trouncing expectations for 8% m/m.
In Japan, the July Jibun Bank Manufacturing Flash PMI rose to 42.6, a modest increase from the prior month. June y/y core-core consumer prices were flat, compared to -0.2% in the prior month. Preliminary June trade data were negative; exports and imports fell -26.2% y/y and -14.4% y/y, respectively.
The Week Ahead:
The US and eurozone release their first estimates of Q2 2020 GDP. The eurozone also announces June money supply and unemployment data. Japan reports June retail sales, industrial production and final trade data. China announces July PMI readings. The US Federal Reserve meets to set monetary policy.
Source for all data cited is FactSet. This update constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. No assurances are made we will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Global equities are represented by the MSCI World Index. The MSCI World Index measures the performance of selected stocks in 23 developed countries and is presented net of dividend withholding taxes and uses the maximum rate applicable to non-resident institutional investors who do not benefit from double taxation treaties. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets.