19.08.2020 10:52

Market Outlook: Unsynchronised virus policies

This past week, global share prices climbed by around 1.5% as measured by the MSCI All Country World Index. Meanwhile in the United States, the broad S&P 500 index just hit a new all-time high, slightly above its February peak. The absence of the long-awaited second US stimulus package continues to curb investor enthusiasm to some extent. The same is true of US-Chinese tensions, with the Commerce Department in Washington further tightening restrictions on Huawei's access to computer chips for its smartphones.

Macroeconomic data show decelerating recovery in Jul

Retail sales in many European countries recovered strongly in the late spring as businesses reopened after coronavirus-related lockdowns. According to data from Bloomberg, the pace of economic recovery in Europe remained rapid well into July but then more or less levelled off.

In China, both retail sales and industrial production were below expectations in July. Although Swedish Trade Federation data on July sales of clothing and shoes by physical stores − including their e-commerce units − showed smaller downturns than previously, sales fell by 18 and 24% respectively, compared to last July.

Data from various countries also show that industrial production is stronger than during the spring, but still 10-15 per cent lower than year-earlier figures, for example in Sweden, Germany and the US.

Unsynchronised virus policies

Rising coronavirus outbreak figures around Europe as people travel more and return to their workplaces and schools are raising questions about what will happen this autumn. The United Kingdom has re-imposed quarantine requirements for travellers arriving from several European countries including France, Germany's foreign ministry is warning holidaymakers about travel to sunny Spain, Italian and Spanish authorities are closing discotheques, while Greece is limiting the business hours of bars and requiring all visitors from Sweden to get tested for COVID-19 before departing from home.

As we wrote last week, we believe countries will aim more at "smart" lockdowns than broad ones. Meanwhile this makes the rules less predictable if they often change.

Deadlocked negotiations on a new American stimulus package

Democrats want to give more money to the US Postal Service, an institution that has become a weapon in the debate on postal voting ahead of the November presidential election. This is only one of many disagreements between Democrats and Republicans. There is a risk of further delays in their currently deadlocked negotiations on an extensive new federal stimulus package for the US economy, but we and the market still believe that a small package may be enacted this autumn.
The focus of US national politics this past week has otherwise been on Kamala Harris, who was selected by Joe Biden as his vice presidential candidate, as well as the ongoing virtual Democratic national convention and Republican pre-election proposals to slash capital gains taxes.

Column: Sweden a winner as the climate agenda shapes the 2020s

There are many indications that climate change awareness will become a big megatrend. This may benefit countries that are far ahead in their transition, while others appear likely to have a difficult journey ahead. SEB's Chief Strategist, Johan Javeus, examines the costs and opportunities associated with climate change in his latest Reflections.

Read the entire column here.

Our market view

The stock market upturn of recent months has largely been driven by "digital dragons": mainly US-listed technology companies. Facebook, Amazon, Apple, Microsoft and Google (or FAAMG, as Goldman Sachs calls them) account for a high percentage of this. Their share of overall market capitalisation has increased − which in itself poses a risk − and their valuations have climbed to historically high levels, but these companies are also showing large profits and very rapid earnings growth, not least due to the current worldwide digitisation megatrend. This suggests that today's valuations are defensible. At present we do not regard them as a bubble.

For the market as a whole, there are also other risks besides high valuations. Pessimists are seeing economies that have lost their momentum and surging virus outbreaks in many countries. But optimists are focusing on the strength of corporate interim earnings reports, which have surpassed low expectations, the powerful stimulus measures that governments and central banks have launched and the outlook for a COVID-19 vaccine and/or new stimulus packages.
Looking ahead, we expect continued low interest rates and bond yields – as well as a slow return to more normal growth trends – to help sustain stock markets. We thus have a cautiously optimistic view of risk assets such as equities, and we are maintaining our hypothesis that stock market downturns can be regarded as buying opportunities.
Returns on corporate bonds have climbed sharply since last March's price decline and have greatly exceeded our expectations. Their future potential is thus not as strong as before, but we are still positive towards owning corporate bonds, especially those with a sustainable focus.

To keep track of this week

The minutes from the US Federal Reserve's latest policy meeting (August 19), an interest rate announcement from Norges Bank in Norway (August 20) and flash purchasing managers' indices for the euro area (August 21).