Stocks Point Lower as COVID Damage Worse Than Forecast

06/30/2020 9:30 am EST

Focus: STOCKS

Fiona Cincotta

MarketAnalyst, Currency Live

Global stock indexes are under pressure as more Coivid-19 breakouts are reports, notes Fiona Cincotta.

Europe is looking towards a mildly negative start as investors continue to weigh up rising Coronavirus figures against signs of global economic recovery and rising U.S. – China tensions. The FTSE is lagging its peers following worse than forecast GDP data.

While risking Coronavirus numbers and flares ups across the globe are keeping investors on edge, improving economic data is going some way to distracting investors. U.S. pending home sales obliterated expectations, jumping 44.3% in May, well ahead of the 18.9% increase forecast and a solid recovery from April’s pandemic inspired plunge. The U.S. housing market is showing signs of a speedy recovery boosting optimism surrounding the U.S. economy, even after Fed Chair Jerome Powell said that the path to economic recovery is extraordinarily uncertain amid efforts to control the virus.

Overnight Chinese PMI data added to the upbeat mood. The official manufacturing PMI showed that activity expanded faster than forecast, printing at 50.9, above estimates of 50.4. The level 50 separates expansion from contraction.

Optimism surrounding the global economic recovery is diverting some attention away from Beijing passing controversial Hong Kong security legislation, gaining major criticism from the United States and Japan. The move has set the scene for the most radical change to the way of life in Hong Kong since the British colony was returned 23 years ago. The move to limit freedom and civil rights in the financial hub puts Beijing further down the road on collision course with the United States.

QI GDP -1.7% vs -1.6% exp.

The FTSE is set to lag its European peers, opening in the red after Q1 GDP showed that the UK economy contracted by more than expected in the first quarter. Q1 GDP -1.7% year-over-year in Q1 worse than the -1.6% forecast. Quarter on quarter the economy contracted a worse than expected -2.2% vs -2% previously reported.

Given that the first quarter only included a week of lockdown, the worst is yet to come in, with economic growth in Q2 expected to be significantly worse given that the economy was paralyzed for two of the three months. Today’s reading doesn’t bode well for Q2.

Following the release, the Pound has dropped back through $1.22 as it heads towards monthly lows.

Brexit talks are doing little to support sterling, with little progress on key issues and the UK insisting that an outline deal is ready by the end of July.

Attention will now turn to Boris Johnson and his plans to spend his way out of the pandemic crisis with huge infrastructure projects.

FTSE

Fiona Cincotta is a Market Analyst for Currency Live

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