Market Update – 23rd July 2020.

After an initial positive start to the week, European equity markets gave up most of their weekly gains yesterday (Wednesday 22 July 2020) with the Stoxx 600 and FTSE 100 closing down around 1%.

In the US, the S&P 500 closed up for its fourth day in a row thanks to better than expected domestic earnings. However, equity markets in Asia were mostly lower this morning led by declines in China. Whilst Japanese equity markets were closed last night and tomorrow for national holidays.

Despite EU leaders demonstrating their commitment to one another earlier in the week, by agreeing an economic rescue package to help their economies recover from the impact of the coronavirus, their display of unity was overshadowed by renewed geopolitical concerns as tensions with China escalated.

Earlier in the week the UK antagonised China by suspending its extradition treaty with Hong Kong, whilst yesterday (Wednesday 22 July 2020) the US ordered the closure of China’s state consulate in Houston, Texas in order “to protect American intellectual property and Americans’ private information”.  Whilst China vowed retaliation, initial reports this morning suggest a more measured tit-for-tat response in that China will close the US consulate in the southwest city of Chengdu and English Premier League football matches will be removed from Chinese state television.

Weighing on the UK equity markets this week have been renewed concerns the path to Brexit is not going to be straightforward. With European leaders having concluded their second longest summit in history, investors are concerned they won’t give Brexit negotiations their full attention until after the summer. At the same time, with the US presidential elections this November, the UK is unlikely to secure a trade deal before the end of the year which would have been an early victory from leaving the European Union.

At an individual stock level in the UK, we were reminded yesterday that the coronavirus has not had a negative impact on all companies. Shares in Kingfisher (the owner of B&Q and Screwfix) rallied strongly after they reported a very strong bounce in sales, despite stores having been closed for several weeks. With much of the UK in lockdown for the reporting period and many individuals furloughed and unable to work, home owners have turned to renovating their homes and gardens. Kingfisher does not feature in our client portfolios as we believe the coronavirus lockdown will have only a short-term positive impact on the company.

Unilever, which does feature in our client portfolios, has also released a positive update this morning resulting in the shares climbing over 8%. This is partially thanks to an acceleration in demand for personal care products, a trend we expect to continue long after the coronavirus subsides as people’s attitudes towards personal hygiene are likely to be impacted positively for a long time to come.

UK and European equity markets have opened slightly higher this morning ahead of another busy day for company earnings and the weekly US jobless claims data. It’s a relatively quiet day for European data, but of particular interest will be a speech by Bank of England policy maker, Jonathan Haskel, about the economic effects of coronavirus.

The FTSE-100 is currently up just over 24 points, or 0.4%.

Peter Quayle, Fund Manager