That European Summit
Thursday saw the ECB announce it's monetary policy decisions, with Christine Lagarde essentially reiterating their commitment to support the economic recovery post-COVID by indicating the European Central Bank is likely to continue with it's quantitative easing measures in full force for an extended period of time.
This was followed by a 2-day in-person summit held by European leaders to discuss a fiscal spending package to help fire up the European recovery - a continuation of the talks held last month. The exact outcomes of the summit are due to be announced following it's conclusion today. A quick Google search for the topic should give you plenty of press coverage to check in on the latest noises coming out of Brussels, with discussions and coverage intensively focussed on the much talked about €750bn joint borrowing plan.
Expect any formal agreements on a fiscal spending deal (or lack thereof) to drive European stock markets sharply higher (or lower) next week.
That Chinese Stock Market
If last week was the boom, it looks like this week was the bust. The mainland Chinese stock market gave up most of the gains it recorded last week to return to levels seen a couple of weeks ago. The pattern we described in our last newsletter seems to have played out relatively quickly this time thanks to two driving factors.
First, efforts by Chinese authorities to dampen the leveraged bets being taken by retail investors helped put the brakes on the upward momentum seen in the mainland China stock market last week.
Secondly, while the Chinese GDP data released on Thursday showed the economy expanded by 3.2% in Q2 2020, higher than the 2.5% expected by the market. While this fuelled some hopes of economic recovery, that recovery still remains fragile. To help reinforce the point on fragility, Chinese retail sales data showed a worse-than-expected decline of 1.8% in June, indicating the Chinese consumer appears more reluctant than expected to start spending again.
Mainland Chinese stocks remain prone to whipsaw movements thanks to the nature of economic agents which form a large chunk of the investor base there, but it seems as though a full blown stock market bubble has been largely averted this time around.
Q2 2020 earnings season got underway this past week, led by the major US banks reporting their earnings. The story so far has been upbeat, with banks outperforming on revenue and earnings versus analyst expectations.
But this was to be expected given the heightened market volatility and unprecedented debt issuance by major corporates around the world in response to the coronavirus throughout April, May and June - all of which meant banks have been busy servicing and advising their clients over the past quarter. This in turn has driven some record breaking revenues being reported by Wall Street's biggest banks, and it now remains to be seen whether this is a trend which can be sustained into Q3 and beyond for the big banks.
The disconnect between what's going on in different parts of the economy is part of the reason why it's helpful to differentiate - even if it's at a very basic level - between the financial, real and digital economies, given all are governed by different dynamics.
On that note, earnings reports are due to come thick and fast from all parts of the global economy - here's a taste of what's in store next week:
20 July - IBM, Philips
21 July - Coca Cola, Givaudan, Novartis, Lockheed Martin, Philip Morris, Snap, Stora Enso, Texas Instruments, UBS
22 July - Akzo Nobel, Biogen, Chipotle, Christian Dior, Equifax, Experian, Gilead Sciences, HCA Holdings, Ingenico, MarketAxess, Microsoft, Northern Trust, Petrobras, Tesla, United Airlines, Wix.com
23 July - Amazon, AT&T, Citrix, Daimler, Danaher, Dassault, Expedia, Fujitsu, Hershey, Hyundai, Intel, Kia Motors, Neste, PG&E, Repsol, Roche, Sika, STMicroelectronics, Twitter, Unilever, Ventas, Verisign, Worldline
24 July - AIA Group, Caixabank, Equinor, Honeywell, Lonza, Schindler, Thales, Verizon, Vodafone
As you can probably gather from all of the above, it's a busy time in financial markets right now - whether that's earnings season, keeping an eye on economic data, monetary policy, fiscal policy, trade tensions between the US / China or UK / Europe, and even a number of IPOs - especially those in Asian markets - which have been screaming higher on debut.
While we can't possibly cover everything in detail, we hope this newsletter can keep inspiring you to learn more about the world around us!
Until next time ✌️
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