Reasons to be cheerful and fearful: Cautious optimism is the way forward
Investment Market update to Friday 21st August:
(Source: Dominion Funds)
Equity markets last week continued their upward trend, with the Nasdaq powering ahead to new all-time highs and the S&P 500 showing solid gains. Economic data continuing to suggest a bounce back in major economies from lockdown lows, supportive monetary and fiscal policy and continued progress on developing treatments and vaccines for COVID-19, are all supporting the positive sentiment in equity markets. There is a growing feeling that we are past the worst of this crisis. Evidence indicates that COVID-19 spreads seasonally, indicating that Northern Hemisphere countries (the bulk of the world economy) could face a ‘second wave’ in the winter. Despite great strides being made in fighting the pandemic, we are still some way off beating this disease. This risk remains high and something that should temper investor optimism. An economic bounce-back… of sorts: what is the data saying? US retail sales were up 1.2%, month-on-month (MoM) in July, missing the market’s expectation for an increase of 1.9%. However, retail figures for both June and July were up 1.9% year-on-year (YoY). This marks three straight months of improvement for US retail, and the emergence of a more normalised picture. Meanwhile, the University of Michigan’s Consumer Sentiment Index edged up to 72.8 in August 2020 from 72.5 in July, narrowly beating estimates of 72. In other US data, industrial production rose 3% MoM in July. This followed a 5.7% rise in June and was in-line with expectations. Manufacturing output rose 3.4%, beating forecasts, with the largest gain coming from motor vehicles and parts, which increased by 28.3%. Building permits jumped 18.8% in July to a seasonally adjusted rate of almost 1.5 million – well above expectations and the highest since January. The Eurozone’s trade surplus widened to €21 billion in June – much more than the market was expecting – but imports and exports both dropped (by 12.2% and 10%, respectively). While it looks like the worst is behind us in Europe, there is still no sign of a spectacular turnaround. However, the Bundesbank suggests that we will see a rapid and broad-based recovery in the German economy this year, as lockdown restrictions have been lifted. In China, recent data has been mixed. The country’s retail trade declined by 1.1% YoY in July – the seventh straight month of contraction. On the other hand, Chinese industrial output rose by 4.8% in July, while average new home prices rose at the slowest pace since May 2018 (4.8%) and real estate investments increased. China’s recovery is moving forward – and this is a clear and encouraging trend – but it’s not moving as fast as some commentators predicted. As always talk to your adviser within the Just Service network if you would like information or otherwise review your savings, investment or pension plans. For all enquiries email firstname.lastname@example.org
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