Active investment commentary & analysis

Money poured into the world's struggling economies

Although far from linear, European equities posted yet another strong return in June 2020. Both increased economic stimulus and an easing of virus lockdowns were behind the move. But the rise was punctuated by bouts of volatility particularly when both China and the US saw incidences of Covid worsening. For China this was relatively isolated with schools in Beijing being closed as a precaution whereas in the US there were very real concerns that the peak of the disease was some way off as Florida, Texas and Arizona all saw a surge in cases.

Ever cognisant of this, central banks and political leaders continued to pour money at the world’s struggling economies. Most notably in the US a $1 trillion infrastructure plan was mooted while closer to home, in Germany, Angela Merkel gained approval for a €145 billion rescue fund. Adding to the spree the ECB further boosted their bond buying programme. With such measures, and continued emergence from lockdown, it wasn’t particularly surprising that markets were able to see through the more negative developments and focus on a much hoped for second half surge in economic activity. But not everyone had faith in this interpretation of events with the IMF in particular projecting a deeper recession and slower recovery than they had done just two months earlier. With Q2 reporting just around the corner company specific news-flow was in short supply suggesting fundamentals still take a back seat over virus and macro-economic data.

The coming months should prove informative for European equities with the hope that economies, and companies, can start to recover and that the worst of the virus passes, resulting in further lockdown easing.