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Market Reviews - GBP (July 2020)

A roundup of factors affecting regional equity and bond markets over the month
August 2020
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Risk Disclaimer

Past performance is not a guide to future performance. The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any products that may be mentioned.

UK

The FTSE All-Share Index lost 3.6% in sterling terms during July. Job losses mounted as businesses continued to grapple with the fallout of Covid-19, with the retail, leisure and aviation sectors among the hardest hit. In a bid to encourage consumers to spend again, the government announced VAT cuts targeting the leisure sector and a scheme offering people discounts for eating out. Chancellor Rishi Sunak also unveiled incentives for employers to bring back their furloughed staff. With an eye on supporting the housing market, the chancellor raised the stamp duty threshold from £125,000 to £500,000, exempting many more house purchases from the tax. The UK economy grew by 1.8% in May, disappointing forecasts following April’s dramatic contraction. In terms of sectors, technology hardware & equipment (17.6%) outperformed while tobacco (-17.2%) lagged.

Risk Disclaimer

The value of investments and any income from them can go down as well as up and investors may not get back the original amount invested.

 

FTSE All-Share Total Return (TR) GBP (%)*

FTSE All-Share Total Return (TR) GBP (%)

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any products that may be mentioned.

Europe

The FTSE World Europe ex-UK Index fell 1.4% in sterling terms. Data showed the eurozone economy had slid into its worst recession on record during the first half of the year, contracting by 12.1% over the second quarter. Covid-19 cases began to increase again in certain eurozone countries, notably Spain where regional lockdowns hampered efforts to reopen the national economy and restart tourism. However, France and Germany saw strong rises in consumer spending for May, while the EU’s labour market appeared to hold up better than economists had expected during the same month. The EU agreed the terms of its €750bn Covid-19 recovery plan, whereby the European Commission will raise finance in debt markets and redistribute as grants to EU countries in urgent need of support.

FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

FTSE World Europe ex UK TR GBP (%)*

FTSE World Europe ex UK TR GBP (%)

US

The FTSE All-World North America Index returned -0.4% in sterling terms over July, with US dollar weakness hindering returns for UK-based investors. US Covid-19 cases reached new highs in the month, raising further concerns on the economic outlook and the near-term sustainability of nascent recovery. Monthly data for June generally indicated economic activity had strengthened versus the prior month. A surge in Covid-19 cases in July, however, dampened hopes of further immediate improvement. US retail sales for June climbed 7.5% month on month, with more people returning to their usual workplace. US-China tensions were on the rise over July, with the Trump administration threatening to ban the Chinese music video app TikTok from the US market, citing national security worries owing to the company’s links with the Chinese government.

FTSE All-World North America TR GBP (%)*

FTSE All-World North America TR GBP (%)

Japan

The FTSE Japan Index lost 7.7% in sterling terms during July. While the Japanese market fell in local terms, returns for UK-based investors were additionally hampered by a rise in sterling versus the yen. The Bank of Japan (BoJ) reined in its growth forecasts, predicting the domestic economy would shrink by 4.7% in the year to March 2021. Although it kept interest rates on hold, the BoJ also estimated inflation would fall by 0.5% over the period given Covid-19 related headwinds and the impact of lower oil prices. Japanese inflation for June remained at just 0.1% year on year. Survey data suggested the Japanese economy had continued to contract in July, with further falls in business activity. This was accompanied by a sharp rise in the number of Covid-19 cases detected in the country over July.

FTSE Japan TR GBP (%)*

FTSE Japan TR GBP (%)*

Emerging Markets

The FTSE All-World Emerging Index advanced 2.7% in sterling terms over July. Brazil (7.5%) was among the best-performing markets over the month, helped by some improvement in local economic indicators. Meanwhile, more positive Chinese economic data helped support emerging markets stocks more broadly, with survey data from Chinese manufacturers for July beating forecasts. Chile (4.4%) was boosted by rising copper prices, with hopes of higher Chinese demand. India (4.2%) also made gains, despite an increase in domestic Covid-19 cases. Turkey (-12.9%) was the principal laggard against currency weakness, sharply rising inflation and concerns on monetary policy. Russia (-4.1%) underperformed, with the ruble coming under pressure from worries on the economic outlook and fears that a Democrat win in November’s US presidential election could bring harsher US sanctions.

FTSE All-World Emerging TR GBP (%)*

FTSE All-World Emerging TR GBP (%)*

Asia Pacific ex Japan

The FTSE World Asia Pacific ex Japan Index returned 0.3% in sterling terms during July. Taiwan (9.5%) was among the bestperforming markets over the month, supported by strength in its technology sector. Korea (1.3%) and Malaysia (0.8%) registered much more modest gains in sterling terms. Singapore (-5.8%) and Hong Kong (-5.5%) were among the laggards, with their banking sectors coming under pressure from fears over rising bad loans. Thailand (-8.0%) was held back by worries on the economic outlook, with the country reporting a sharp year-on-year fall in exports for June. Survey data from Chinese manufacturers beat forecasts, suggesting some improvement in activity. However, US-China tensions increased, with the Trump administration threatening to ban the Chinese music video app TikTok from the US market.

FTSE World Asia Pacific ex Japan TR GBP (%)*

FTSE World Asia Pacific ex Japan TR GBP (%)*

Government Bonds

Global government bond yields fell over the month against worries over rising Covid-19 cases and the economic outlook. US Treasury bond yields and inflation expectations declined, with a dovish tone from the Federal Reserve fuelling sentiment that US interest rates would be held at nearzero levels for the next few years. A surge in US Covid-19 cases over July raised concerns that the US economy would likely come under further pressure. The EU agreed the terms of its €750bn Covid-19 recovery plan, whereby the European Commission will raise finance in debt markets and redistribute as grants to EU countries in urgent need of support. Official figures showed the US economy contracted by an annual 32.9% over the second quarter, while the eurozone economy shrank by 12.1%. 

Corporate Bonds

Global corporate bonds generated positive returns over July. While monthly data for June pointed to some improvement for the US economy, surging Covid-19 cases across the US raised the prospect of a fresh hit to the economy. Official figures showed the US economy contracted by an annual 32.9% over the second quarter, the worst result since the second world war. Meanwhile, the eurozone shrank by 12.1%. The EU agreed the terms of its €750bn Covid-19 recovery plan, a move that was expected to help some of the peripheral eurozone economies. Concerns grew over the impact of Covid-19 on the global banking sector given mounting provisions for bad loans. The European Central Bank called on eurozone banks to halt dividend payments until at least January. Corporate bond issuance slowed in July following a surge in new issues over recent months.

 

*Source: Lipper to 31-Jul-20, total return. Indices rebased to zero at 30-Jun-20.

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