Commentary on financial market developments – June 2020
- A second wave of coronavirus?
- USA: consumer confidence rises
June’s stock and commodity market results are positive for investors. Stock prices rose on the back of the rapid abandonment of anti-coronavirus measures and the hope that the high government stimulus and loose monetary policies of most developed countries will quickly reverse the trend and get the world economy back on track. However, especially at the end of June, the situation does not seem so optimistic anymore, as the coronavirus pandemic is far from over and a second wave is underway or imminent in some countries.
A prime example is the USA, where the seven-day moving average in the number of new cases is at an all-time high and rising rapidly. The main culprit is the significant increase in the number of new infections in California, Florida and Texas, where, in addition, intensive care units are rapidly running out of space. It is not just the number of infections that is rising, which could be explained by the increasing number of tests. The ratio of positive tests to tests performed has also risen significantly, and has already surpassed 6 % in the USA and has even risen above 22 % in Arizona, for example. The coronavirus thus appears to be spreading faster and faster in the USA.
The current situation is, of course, having a major impact on voter preferences in the United States. The original favourite, defending President Donald Trump, is now losing significantly to his opponent, Joe Biden. Moreover, he is also losing in traditionally Republican states such as Texas, precisely because of the local acceleration of the pandemic. More than 40 million people have already lost their jobs in the US as a result of the pandemic, and unless the situation is turned around quickly, the current President will have a very difficult time in the elections, especially since he downplayed the whole situation surrounding the coronavirus at the beginning.
The impact of the coronavirus crisis on the world economy is substantial, but it is having a different impact on different sectors of the economy. Unsurprisingly, one of the sectors most affected is air transport. This, too, is the reason for the exclusion of Lufthansa shares from the prestigious German DAX bluechip index, in which they have featured since its inception in 1988. Europe’s largest and one of its oldest airlines, a traditional symbol of the German economy, has been operating for more than 80 years. It is also one of the world’s leading carriers and a key member of the Star Alliance. Its delisting from the DAX shows the huge hit that this company has taken in the current crisis. Moreover, in the highly competitive market that is air transport, carrier margins have long been squeezed to an absolute minimum.
We end our June market commentary with a very positive observation, which is the rise in US consumer confidence, which rose to 98.1 points in May (results are always published with a one-month delay) from 86.6 the previous month. Consumer confidence (optimism/pessimism) seems to be the key to further economic development. If positive expectations prevail, we can hope for a relatively quick return of the economy to its previous levels. However, positive expectations will be undermined by rising unemployment and the possible return of restrictions due to the second wave of the coronavirus pandemic.