Global share markets continued to gain confidence in the fact that central banks and governments are largely “throwing the kitchen sink” at trying to minimise the COVID-inspired recession. Central banks continued to reveal huge stimulus packages and governments continued to spend aggressively in order to limit further carnage in labour markets. Over the month the MSCI World rose 2.5% in local currencies.
In the US, equities made strong gains in the first week of the month after the release of some better than expected economic data. In particular, the labour market in the US rebounded unexpectedly in May with nonfarm payrolls gaining by 2.5 million.
At the end of May the global count of daily new COVID-19 cases was 110,000. A month later and the rate had climbed to 175,000. This - coupled with the respective numbers in the US going from 21,000 to 46,000 - made markets worry about a delay to scheduled re-openings and the introduction of new lockdowns. In addition, US-China tensions returned to the fore as China imposed new, controversial regulations on Hong Kong. As a result some of the market’s gains were given back with the S&P500 ending the month up 1.9%.
In Europe share markets rallied strongly for the third month in a row driven by improving economic data and continued monetary and fiscal support. Highlights included the European Commission’s Economic Sentiment Indicator registering its largest one month rise on record and the European Central Bank adding a further €600bn to its Pandemic Emergency Purchase Programme - bringing its overall size up to an astonishing €1.35 trillion. The Bloomberg European 500 Index gained 3.2% over the month.
Share markets in China also made gains as economic data signalled that a V-shaped recovery was getting back on track with the production side of the economy returning to pre-Covid-19 levels. Meanwhile consumer spending also improved – admittedly from a low base. The fact that China appears to be on top of the virus, by enforcing stringent lockdowns wherever virus flare-ups are found provided additional investor confidence. The Shanghai Stock Exchange Composite Index returned 5.6% over the month.
Locally the S&P/NZX50G had another stellar month rising 5.2% bringing its year to date return (to 30 June) to -0.4%. The top performers for the month were Metlifecare (up 23%) and Fisher & Paykel Healthcare (up 19%). As discusssed above Metlifecare rose on hopes that the company may yet strike a deal with Swedish investor EQT Funds Management after EQT had walked away from a takeover offer for Metlifecare in late April. F&P Healthcare continued the year’s meteoric rise due to the unrelenting demand for its products. The company posted record earnings with net profit after tax of $287 million, up 37% from last year.
Looking ahead and we think the current global earnings season will need to be a strong one in order to outweigh a resurgence in negative COVID-19 headlines and uncertainty created by the upcoming US Presidential election. The US Government also needs to approve an extension of US unemployment benefits by the end of the month. Consensus is this should happen but if both sides of the House don’t come together in time this would weigh on markets.
Quarterly earnings are always of interest but the forward guidance provided by company top brass will be particularly important in the global earnings season which recently kicked off. Notwithstanding that we are in the midst of a global pandemic share markets the world over have rebounded vigorously. It is fair to say a rebound in earnings is well and truly being priced in. If guidance disappoints it will create more volatility for share markets.