June 2020 Investment & Economic Update

In our latest monthly investment update for June 2020, we take a look at how the global investment markets, economy and commodities are performing.

The FTSE 100 index of leading UK company shares closed at the end of May at 6,168.30, rising by 267.09 points or 4.53% during the month.

Global stock markets are climbing as developed countries ease their lockdown measures, and investors expect to see further monetary stimulus to kickstart the global economy.

Headwinds for investors include civil unrest in the US and a rising death toll from the Covid-19 pandemic.

On a global basis, in early June, the MSCI World Equity Index reached its highest level since 6th March, with gains on Asian markets driving the index higher.

With China, South Korea and Japan leading the health recovery from Covid-19, markets there are only 5-6% off their 12-month peaks.

Despite this modest recovery, the global index remains down 7% year-to-date, with broader fears of a slowing global economy.

In the UK, the domestic economy fell sharply in May, according to a new survey.

The latest Purchasing Managers' Index (PMI) from IHS Markit shows a reading of 30.00, up from 13.8 a month earlier. An index reading below 50 indicates that the sector is in decline.

Tim Moore, economics director at IHS Markit, said: "Consumer demand also remained very subdued, with large areas of the service economy still in the planning stage of restarting business operations."

Another indicator of a declining economy in the UK was shop prices, which fell in May by 2.4% in annual terms. A month earlier in April, shop price fell by 1.7%, according to a survey by the British Retail Consortium and Nielsen.

These shop price falls are the most significant since records began in 2006. The sharpest falls were seen in clothing and furniture, but food prices increased as a result of higher business costs, including the implementation of social distancing measures.

Helen Dickinson, the BRC's chief executive, said: "We expect to see continued upward pressure on food prices from the effects of the pandemic in the coming months, while non-food prices are likely to remain deflationary with subdued sales."

One stark indicator of the economic challenges faced by the UK is the number of workers on 'furlough' as part of the government's Coronavirus Jobs Retention Scheme.

A total of 8.7 million employees are on furlough, which represents around a quarter of the UK workforce, at a cost to the public purse of £14 billion a month.

Also, 2.5 million self-employed workers have applied for government grants, and businesses have borrowed more than £31 billion in government-backed loans.

In the US, the Congressional Budget Office is forecasting that the coronavirus pandemic will drag on the US economy for nearly a decade. In its latest forecasts, the nonpartisan CBO estimates a cut to economic output of 3% between now and 2030, costing the economy $7.9 trillion.

Oil prices started rising at the start of June, above $40 a barrel for the first time since March. The market is anticipating that the OPEC+ group will maintain their output cuts, with the price also supported by lower inventories in the US and early sign of demand recovery as coronavirus lockdown measures ease.

During May, price inflation in the UK fell to its lowest level in four years. The Consumer Prices Index (CPI) measure of price inflation fell to 0.8% for the year to April, with lower prices for petrol, clothing and used cars.

Average house prices in the UK fell by 1.7% last month, compared with April. This is the most significant monthly fall in house prices in 11 years.

The latest Nationwide survey shows annual house price growth falling from 3.8% to 1.8% in May, with property market transactions cut in half.

Robert Gardner, Nationwide's chief economist, said: "We have already seen a sharp economic contraction as a result of the necessary measures adopted to suppress the spread of the virus."

The benchmark 10-year government bond (gilt) yield fell to 0.223% in early June, with investors continuing to seek the relative safety of this asset class.

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