Market news – 29 June 2020

Survey-based data improved

• The eurozone composite PMI increased to 47.5 in June (May:31.9, April: 13.6), marking a sharp recovery from earlier in the year but still indicating moderate contraction. The services sector drove the majority of the increase, +16.8 points to 47.3 over the month, whilst manufacturing rose +7.5 points to 46.9. Among the largest economies, the French composite is signalling expansion for the first time since February (June: 51.3, April: 32.1) with both services and manufacturing above 50 (50.3 and 52.1 respectively)
• The German composite improved markedly over the month (+13.5 points to 45.8); manufacturing and export orders saw a sharp increase over the month but the labour market remains very weak indicated by the employment balance at just 38.6 (+2.2 over the month). Across the eurozone, manufacturing new orders and exports saw the sharpest recoveries and there was some improvement in services new business, although business expectations in the services industry remain very low below Jan/Feb levels. Across Europe, these early readings suggest a V-shaped recovery is still possible, although data in the coming months will confirm the sustainability of the current expansion
• UK PMIs also saw a marked improvement over the month, with the composite reading 47.6 (May: 30.0). Services increased from 29.0 in May to 47.0 (consensus: 40.0) and manufacturing increased from 40.7 to 50.1 (consensus: 45.0). Among the sub-indices, services business expectations and manufacturing export orders were particularly strong, whilst employment indices remain particularly weak (just above 40 in manufacturing and just below 40 for services). Whilst the recovery in expectations was welcome, we should be cautious given, 1) GDP continues to fall (-20.4% in April), 2) employment PMIs remain weak and 3) businesses are yet to prove their resilience as government support is tapered later this year (e.g. Job Retention Scheme)
• US flash PMIs improved in line with expectations in June. The manufacturing PMI increased from 39.8 to 49.6 over the month and services increased from 37.5 to 46.7. As many businesses reopened on a larger scale throughout the month, new orders fell at a slower pace and job-losses eased in June as manufacturers begin to address the backlog of orders. In the services sector, new orders fell at a slower pace and price indicators showed increases over the month
• The German IFO business climate index saw a record monthly increase in June from 79.7 to 86.2 (consensus: 85.0). The increase was led by expectations indicators (+10.9 points) whilst the current conditions assessments saw a smaller improvement (+2.4 points to 81.3). The worst-hit sectors earlier in the year saw the largest recoveries over the month – services +15.0 to -6.0 and trade +16.3 to -14.2 (combined c.60% of reading), but manufacturing and construction also improved +13.1 and +4.8 points respectively over the month

But markets jittery on second wave concerns

• Economies continue to monitor signs of a second wave of COVID-19 as some reopened regions are seeing a spike in the number of cases. In the US, Texas State Governor Greg Abbott has been forced to halt re-opening after they recorded 5,996 new cases and 47 new deaths on Thursday, the highest daily death toll in a month. Whilst cases in the South have spiked in those States that reopened earliest, the initial hot-spots of the virus such as New York and other north-eastern states have seen a decline in daily coronavirus cases. In order to control the virus, New York, New Jersey and Connecticut governors said that they would ask people travelling from the eight states – Alabama, Arkansas, Arizona, Florida, North Carolina, South Caroline, Texas and Utah – to go into self-isolation for 14 days upon entry
• The MSCI ACWI global equity index was down over 2% and the S&P 500 almost 3% over the week. 10-year UK gilts yields fell to as low as 0.14%, the lowest since the height of the market panic in March