Fisher Investments recaps the biggest market, political and economic news from last week, including US and eurozone GDP figures, Japanese retail sales and Chinese Purchasing Managers Index (PMI) readings.
Global markets rose as the first developed economy Q2 2020 gross domestic product (GDP) results began to emerge. In the US, the first estimate of Q2 2020 GDP was -32.9% annualized (-9.5% q/q). While historically bad, this steep contraction in Q2 GDP was largely expected, with forecasts predicting a 34.1% annualized decline. Further, and most importantly, the stock market moves ahead of the economy. We believe stocks’ steep decline in February and March had anticipated contractions in Q1 and Q2 GDP globally—and stocks’ rise since March is pre-pricing a brighter future ahead. For more, please see our 7/30/2020 commentary, “Q2 GDPs Were Historically Awful but Not a Surprise.” On Wednesday, as expected, the Federal Reserve left the fed funds target range unchanged at 0.0% - 0.25%. Initial jobless claims were 1.4 million for the week ending July 25, slightly higher than the previous week. While many worry budding economic green shoots will wither if millions remain out of work, most recoveries have heightened levels of unemployment early on—and this doesn’t historically hinder new bull markets. For more, please see our 7/30/2020 article, “Will a Jobless Recovery Hinder Stocks”
In the eurozone, the first estimate of Q2 2020 GDP slightly missed expectations at -12.1%. June money supply (M3) rose 9.2% y/y, in line with forecasts. The June unemployment rate ticked up slightly to 7.8%, in line with expectations. In the UK, June money supply (M4) rose 1.0% m/m.
In Japan, June retail sales fell 1.2% y/y and 13.1 m/m, respectively, less than expected. Preliminary June industrial production grew 2.7% m/m, but fell -17.7% y/y. Final June imports and exports dropped 14.4% y/y and 26.2% y/y, respectively. The June unemployment rate fell slightly to 2.8%, better than forecast. In China, the July Caixin Manufacturing and Non-Manufacturing PMIs rose to 51.1 and 54.2, higher than expected and indicating expansion.
The Week Ahead:
The US, UK, and eurozone announce July PMI readings. The US releases July unemployment figures. The eurozone reports June retail sales figures and unemployment data. The Bank of England meets to set monetary policy. China announces July trade data.
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.