June proved to be a choppy month for investors as hopes of economic recovery were tempered by fears of a second wave of infection as instances of COVID-19 surged in parts of the US. Lockdown measures continued to ease around the world; however, the WHO warned that Europe had experienced an weekly increase in cases for the first time in months.
- The BoE, the Fed, and the ECB expanded stimulus measures
- The number of worldwide COVID-19 cases passed ten million
- Brexit began to attract attention once again
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June proved to be a choppy month for investors as hopes of economic recovery were tempered by fears of a second wave of infection as instances of COVID-19 surged in parts of the US. Lockdown measures continued to ease around the world; however, the World Health Organisation (WHO) warned that Europe had experienced an weekly increase in cases for the first time in months and urged member states to take action to avoid a “significant resurgence”. According to the WHO, over ten million cases of COVID-19 had been diagnosed worldwide by the end of June, with more than 500,000 deaths recorded.
“The coronavirus pandemic has created the worst global economic collapse since 1870”
The International Monetary Fund (IMF) believes that investors’ optimism is being underpinned by anticipation of continued support from central banks but warned that “financial market expectations about the extent of central bank support could turn out to be optimistic”. The Bank of England, the US Federal Reserve, and the European Central Bank all extended monetary stimulus measures during the month.
The coronavirus pandemic has created the worst global economic collapse since 1870, according to the World Bank, which found that around 90% of the 183 economies in its study were predicted to experience recession in 2020, compared with about 85% at the height of the Great Depression of 1930-32. The World Bank expects the global economy to contract by 5.2% this year; in comparison, the IMF cut its forecast for global economic growth in 2020 from -3% to -4.9% during June.
Sentiment received a boost during the month from the news that the US labour market rallied unexpectedly in May: the country’s economy added 25 million jobs and the rate of unemployment fell from 14.7% to 13.3%. Investors’ hopes were quelled later in June, however, as the number of fresh claims for unemployment benefit fell less steeply than expected. The Dow Jones Industrial Average Index rose by 1.7% during June.
With only six months until the Brexit transition period ends, investors’ attention began to shift from the pandemic towards the developments in the negotiation process. The Organisation for Economic Cooperation & Development (OECD) warned that the UK risked further economic instability if it failed to agree a trade deal with the EU by the end of 2020. The FTSE 100 Index rose by 1.5% in June, while the Dax Index climbed by 6.2%.
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