UK

The FTSE 100 fell 2.7% over the week.

The flash IHS Markit/Cips services purchasing managers’ index (PMI) rose to a five-year high of 56.6 in July, up from 47.1 the previous month and much stronger than had been expected. The UK manufacturing PMI reached a two-and-a-half year high of 57.1, from 50.1 in June, bringing the composite index to 57.1, up from 47.7 in June.

UK retail sales rebounded by a stronger-than-expected 13.9% in June, although they remained 1.6% lower than the same month in 2019. However, the latest data on card payments and bank account transactions shows that spending was worse in mid-July than it was at the start of the month.

US

The S&P 500 slid 0.1% over the week.

So far in the second-quarter earnings season,  most US companies have reported better than expected earnings, apart from large-cap technology stocks which have generally disappointed. Intel said it would delay its planned launch of its next generation of chips by six months.

Speculation that Congress would provide additional stimulus were raised after Senate majority leader Mitch McConnell backed another round of direct payments to American households.

US weekly jobless claims rose 1.42m in the latest week. This is the first weekly rise in new unemployment claims in almost four months.

Europe

The FTSEurofirst 300 lost 1.6% over the week, although, at one point, Germany’s DAX had turned positive for the year to date, having risen some 60% from its nadir in March.

The EU agreed a €750bn recovery package to fund the region’s recovery from the coronavirus emergency funded by the issue of bonds. The deal which will provide €390bn in grants and €360bn in loans to countries worst affected by the Covid crisis. The fund should improve the credit ratings of member states by establishing a joint response to the crisis and lays the framework for tighter co-ordination on fiscal policy in the bloc. It will also create a sovereign debt market that covers the entire eurozone for the first time in history.

The flash estimate of the eurozone composite purchasing managers’ index (PMI) rose to a stronger-than-expected 54.8 in July, from 48.5 in June. Service sector activity surged to 55.1, compared to 48.3 in June, while manufacturing rose to 51.1 in July, from 47.4 in June.

In Germany, the flash estimate of the manufacturing PMI rose to 50 in July, its first move out of contraction territory since the end of 2018. The services PMI rose to a stronger-than-expected 56.7 in July, taking its composite PMI to 55.5 compared to 47.0 in June.

The French services PMI rose from 50.7 in June to 57.8 in July, the fastest acceleration in two-and-a-half years, but the manufacturing PMI recorded a slight reduction, dipping from 52.3 in June to 52 in July. On balance, the composite PMI increased to a 30-month 57.6 in July.

The European Commission’s headline consumer sentiment indicator fell to a weaker-than-expected reading of -15 in July, below June’s -14.7.

Japan 

The Nikkei 225 rose 0.2% over the week.

Pacific Basin

South Korea joined Singapore in falling into a recession in the second quarter as its GDP shrank by a worse-than-expected 2.9% year on year. This was the steepest decline since 1998. Exports, which account for nearly 40% of the economy, were the biggest drag as they fell by the most since 1963.

Australia reported its largest budget deficit since the second world war.

Emerging Markets

Russia’s central bank cut interest rates for the fourth time this year, lowering rates by 25bps to a new record low of 4.25%. The central bank governor said Russia would probably continue to cut rates throughout 2020.

Bonds

The yield on US 10-year Treasury closed the week at 0.58%. During the week, five-year yields briefly dropped to a new record low of 0.25%. Real yields in the US dropped to the lowest level since 2012 during the week as investors bet that the Fed would continue to keep monetary policy very loose for an extended period of time.

The yield on the 10-year German Bund ended the week at -0.45%. Peripheral eurozone spreads over Germany narrowed, with the German/Italy spread dropping to its lowest level in four months. Credit rating agencies universally were supportive of the EU’s Recovery Fund agreement, commenting that it was “net supportive” for eurozone credit ratings and could become a permanent feature of the EU’s institutional set-up.

Currencies

The euro neared a two-year high against the US dollar.

Commodities

Gold broke through $1,900 an ounce, its highest level since 2011.