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Equity markets and risk assets soared during the second quarter of the year, as countries began easing lockdown restrictions and activity started to rebound. Despite Covid-19 continuing to spread in some regions of the world, such as Brazil and the USA, support provided by policy-makers around the world and the abundant liquidity contributed to a swift market recovery. Investment demand for safe-haven assets like government bonds and gold remains elevated, reflecting the nervousness among investors. Volatility is expected to remain elevated throughout the year, as the economic impact of the pandemic has yet to be crystalized, while political uncertainties, such as the potential flare-up of US-China trade tensions and the US presidential elections remain.
US stocks recorded their best quarter in more than two decades, with the S&P 500 rising more than 20% since the end of March. The main catalysts for the stock market rally were the stimulus measures employed by the government and the central bank, the bottoming of economic activity and the subsequent improvement in consumer and business confidence. Manufacturing activity rebounded strongly in June, with new orders posting the strongest monthly gain on record. The Federal Reserve signalled that interest rates will stay at near zero levels at least through 2022. Fed’s policy makers are now in the early stages of debating different strategies to cap yields on Treasury securities by committing to purchase whatever amounts are needed to keep yields at certain levels.
The downturn in European business activity slowed significantly in June as restrictions to contain the coronavirus crisis were eased. Germany and France, the two European heavyweights, show signs of a strong recovery as business confidence in the two countries recovered at record rates in June. Germany and France have been at the forefront of efforts to drag the EU out of what is expected to be the worst recession in history. Angela Merkel together with French president Emmanuel Macron will play all their cards during Germany’s 6-month presidency of the EU to urge EU states to reach agreement on the proposed EU recovery Fund.
UK household consumption declined much more than initially estimated in Q1, resulting in a quarterly GDP contraction of 2.2%. On a more positive note, the downturn in UK economic activity eased significantly in June, as the economy started to reopen. Combined with data suggesting that coronavirus infections are declining and the massive government support, there is a clear signal that some bounce-back is already under way.
China’s economic recovery picked up steam in June as exports and services benefited from government support policies and the reopening of some overseas markets, official data showed. Extremely accommodative measures helped boost homebuying demand, construction and employment. The increased economic momentum points to China recording positive growth in the second quarter of the year.
In commodities, Gold prices reached a fresh multi-year high, driven by safe-haven demand and stimulus measures. Oil prices have recovered some of the losses in the year, as global travel starts to pick up steam and OPEC supply cuts managed to contain fast rising oil inventories.
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