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Weekly financial market overview 27.07.-02.08.

News - August 3, 2020



Konstantins Goluzins, CFA

Head of Asset Management
Phone.: (+371) 6700 0456
E-mail: trust@bib.eu


Main events of the previous week

Last week, the advance estimate of the GDP in Europe and the US for the second quarter became available. EU GDP in the second quarter of 2020 fell by 11.9% compared to the previous quarter and by 14.4% compared to the same quarter last year. In the Eurozone, GDP fell 12.1% qoq and 15% yoy. These are the largest drops in EU and Eurozone GDP since 1995, when Eurostat began publishing these statistics. The largest economy in the Eurozone, Germany, contracted 10.1% in the second quarter compared to the previous quarter. France's GDP fell 13.8% compared to the first quarter. This is a record quarterly decline in GDP since World War II. The GDP of Spain suffered the most, where the fall in GDP was 18.5%, compared to the previous quarter. Italy's economy contracted 12.4% quarter-on-quarter. According to the July forecast of the European Commission, for the whole of 2020, the EU's GDP will decrease by 8.3%. Yet, the forecast is based on the conditions that quarantine restrictions will be gradually lifted and a second wave of the pandemic will not happen. European economy has suffered more than the American one due to the coronavirus pandemic. US GDP in the second quarter fell by 9.5% compared to the previous quarter. The real GDP of the United States in annual terms fell by 32.9%. This is the record-setting drop in US GDP for the quarter since 1947, when the US government began collecting such statistics. The previous anti-record dates back to the first quarter of 1958, when the economy contracted by 10% in annual terms, that is, the current figure exceeded it by more than three times. All major components of GDP declined, except for US federal government spending. They grew by 17.4% in annual terms.

Last week, on July 29, the US Federal Reserve left its key interest rate unchanged. The regulator reiterated its promises to keep the rate in the 0-0.25% range until the economy recovers from the effects of the coronavirus pandemic. The Fed also said it will continue to buy at least $ 120 billion in Treasury bonds and mortgage-backed securities per month to ensure the stability of financial markets. At a press briefing, Fed Chairman Jerome Powell pointed to the uncertainty in the economy and added that a full recovery is unlikely until people feel safe. Powell also assured that the Fed will use all the tools to support the US economy. The regulator intends to keep the rate at this level until 2022, which follows from its June assessment of the economy and the forecast for the next three years. According to the Fed's forecast, US GDP will fall 6.5% in 2020, but will grow by 5% in 2021 and 3.5% in 2022. Inflation will be 1% this year, 1.5% in 2021 and 1.7% in 2022.

Significant event took place at the market of precious metals, where the price of gold last week renewed its record since 2011. The previous record for the price of gold was $ 1921.41 per ounce and that happened on September 6, 2011. The gold price at the close of trading on Friday July 31 was $ 1975.02 per ounce.

Economic data

USA. According to preliminary data, GDP in the second quarter declined by 32.9% on an annualized basis (compared to the first quarter of 2020), while in the second quarter, GDP was expected to decline 34.1% y/y. This is the largest decline in GDP on record.

The number of initial jobless claims for the week was registered in the amount of 1 million 434 thousand, which is 12 thousand more than the week before, but 11 thousand less than analysts predicted.

The volume of orders for durable goods also increased in June versus May by 7.3%. The growth of the base indicator, which does not include civil aviation, amounted to 3.3% over the same period.

Eurozone. According to advance estimate, GDP in the second quarter declined by 15% year on year and by 12.1% compared to the first quarter of 2020. This is the largest decline in GDP on record.

The consumer price index in July fell by 0.3% versus June, while the annual inflation was 0.4%. The growth of the core inflation rate, excluding food and energy, amounted to 1.2% y/y in July.

China. According to the assessment of the Caixin Bank, in July, the PMI in the manufacturing sector increased by 1.6 points and amounted to 52.8 p., in turn, according to the National Bureau of Statistics of China, the PMI Manufacturing in July was 51.1.

Key events this week

  • On Wednesday, in the Eurozone, retail trade data for June will become known, while the US is to publish data on the trade balance for June, as well as changes in oil inventories for the week.
  • On Thursday, the US will publish the data on the number of initial jobless claims for the week, and the Bank of England will publish its decision on the key rate.
  • On Friday, the US will publish data on the state of the labor market in July, and China will report on the trade balance for July.

The information provided herewith has an informative nature. This information cannot be regarded as an offer or recommendation for purchase, storage or sale of securities, or as an investment recommendation, an investment survey or a consultation on investments, or a recommendation to entrust management of your assets to the specific investment manager. The Client is fully aware and undertakes all risks involved in the investment. This information is prepared by AS Baltic International Bank.

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