Global Markets Overview: European equities decline again
Updated: Sep 11, 2020
From 27 July to 10 August 2020
European stocks were lower last week due to growing concerns over a second wave of Covid-19 infections and worse than expected regional economic data. This marked the first monthly decline in European equities since the stock market crash in March. Last week, the pan-European STOXX Europe 600 Index, Germany’s DAX Index and the French CAC 40 Index all recorded losses of 3.0%, 4.1% and 3.5% respectively .
The latest economic data from the Eurozone was worse than expected, dashing hopes of a rapid recovery from the pandemic. Spain has been the worst hit by the pandemic with their economy shrinking 18.5% and more than a million workers losing jobs during the second quarter of the year. The rise in unemployment was the largest on record, exceeding the number of jobs lost during the 2008 financial crisis . There has been a substantial rise in the number of coronavirus cases in Spain which has threatened the reopening of the tourist industry – one of the largest employers in the country. The situation was exacerbated by Boris Johnson’s decision to remove the airbridge between the UK and Spain.
France has also faced its largest contraction in GDP since the second world war, with a decline of 13.8% for the second quarter of 2020 . This contributed towards a fall in consumer confidence as French households are still fearful over job prospects and unemployment. Relative to other European countries, Germany’s lockdown was much shorter and thus has seen a smaller fall in GDP of around 10%. However, this was still the largest decline the country has faced since calculations began in 1970, with Florian Hence, an economist at Berenburg, saying that the decline in output has wiped out 10 years of growth .
Meanwhile, Michel Barnier, the EU chief negotiator over Brexit, visited the UK last week to lay the foundations for the next round of talks which start on the 17th of August. The consensus from both the financial markets and the public is that a trade deal will be reached . However, there are still some important negotiations to be made over key issues such as fisheries and state aid. If there is a no deal Brexit, this could lead to increased volatility and downside risk in the markets, along with fluctuations in currency.
It was also a big week for second quarter company earnings. Results were mixed, with banks taking a large hit. This came with a recommendation from the ECB that the banks should freeze dividend payments till January 2021 and should be extremely moderate when setting staff bonuses. Energy companies, such as Royal Dutch Shell, remained resilient with large trading profits offsetting a fall in demand. Technology stocks soared on Friday, ending a choppy week on a high note. Nokia was a standout performer up 12.5% during the final trading session of the month as they reported a rise in underlying profit .
By John Taylor - Analyst at York IFS Global Market Telegraph
This article was first published in University of York Investment and Finance Society's Global Market Telegraph (GMT) Edition 4.1 in early August 2020.
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