ANALYSIS-high five: global stocks continue to ride coaster

АНАЛИЗ-Дай пять: мировые акции продолжают поездку по американским горкам

(Reuters) – 1/FIRST half of the YEAR

In the first half of 2020 global stock markets showed sharp fluctuations. A decrease of 35% from 20 February to 23 March, they are now in the 10% of record February highs due to unprecedented monetary stimulus, cut interest rates to 0% or lower in most major economies, and significant quantitative easing. The cost of borrowing for first-class American borrowers actually fell below the January level.

So what will happen during the remainder of the year? A lot depends on whether another wave of coronavirus, which could become another test of strength for the authorities. And if it has found an effective treatment or vaccine, the most powerful global downturn in decades may also be the shortest.

However, the crisis has exposed these weaknesses, as high debt levels of companies and their excessive dependence on repurchase of shares.

2/CONTROL

The level of anxiety in Asian markets may rise in the coming days due to geopolitical tensions.

Hong Kong will be the center of attention of the Chinese Parliament, which will convene on June 28-30 to finalize security act, aimed at combating separatism, subversive activities, terrorism and conspiring with foreign forces.

After a year of fierce protests in Hong Kong focus on how severe consequences can be expected to result from the adoption of this law. What actions will be classified as a crime in its framework and what will be the punishment. Investors also want to know whether the law will operate retrospectively and will create new opportunities for confiscation of assets.

China and most of Asia will also publish a study on manufacturing activity. But given the regular military threats from North Korea and increasing military presence on both sides of the disputed part of the border between China and India, geopolitics is likely to outweigh other factors.

3/A NICE SURPRISE

After a horrendous April and may figures, the latest us economic data were mostly positive, which helped equity markets to remain within 10% of decolonising level.

Following the recovery of employment and retail sales the value of the index of economic surprises in the U.S. (U.S. Economic Surprise Index), which tracks economic data in comparison with economists ‘ expectations, which counts Citigroup (NYSE:C), is at a record high level.

Now the focus is on whether there is a continuing rate of recovery. Data on consumer confidence, which will be released on Tuesday, index of business activity promsektore on Wednesday and employment data in the US on Thursday as weekly and monthly – enter the number of expected reports.

The number of jobs outside the agricultural sector in may increased by 2.5 million compared to the record fall in April more than 20 million. A new improvement could push the markets up – assuming that would not introduce new restrictions in connection with the coronavirus.

4/INFLATION EXPECTATIONS

Economy recover from the shock caused by COVID-19, but follow any of them inflation? Preliminary data on inflation for June in the Euro area can give clues.

Inflation expectations are already reacting to data showing that the worst of the economic impact is already behind us; long-term indicator of the direction in which the markets expect the movement of inflation in the Eurozone is at the level of slightly above 1%, being close to peak since the beginning of March and by almost 40 basis points above the record lows recorded in the same month.

Some investors have already been buying gold and other assets to hedge against inflation. But others say that if you dig a little deeper into the activity indicators, they say little about the fact that inflationary pressures are gaining momentum. And until that happens, expect that the ECB will keep the foot on the stimulus.

5/A TURNING POINT FOR EUROPE

American rally slowing down? It looks like it. Last month, US stocks lagged behind the world by 2.5%, while European showed dynamics better world at the same 2.5 percent. According to the BofA, European stocks got inflows for three of the last four weeks.

This shift may have cost the increasing the chances of winning Democrat Joe Biden in the presidential election in the United States, the deterioration of Sino-us relations and the continuing growth in the number of cases of coronavirus in the United States, impede the full recovery of economic activity.

Europe, meanwhile, have largely taken the spread of the virus under control, the economy of the region recovered faster than expected, and offered a reconstruction Fund of the EU accelerates the integration of the Eurozone.

BlackRock and Goldman Sachs are among those who recommend clients to shift attention in the direction of European shares, which lagged behind the U.S. throughout the previous economic cycle due to the lack of fast-growing securities.

It seems that European markets will outperform the competition, at least before the U.S. election, which will be held in November. However, in the long run, American firms, including technology companies, could face downside risks in the form of higher taxes, especially on the part of the democratic administration. Thus in a world where investors attach growing importance to environmental, social and governance (ESG) criteria of European higher ESG indicators are a plus.

(Mark Jones, Dhara Brings and Tyagaraju Adinarayan in London, Ranganathan Vidya in Singapore and Sakib Iqbal Ahmed in new York. Translated By Elizaveta Zhuravleva. Editor Dmitry Antonov)

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