Biweekly International Market Observations (8/6/20)
As we continue through the second half of the year, we have some important market observations in the world of international investing. Below are some key points for the week ahead:
- Manufacturing PMI’s in the U.S., Europe, and China all reached expansionary levels in June after deep contractions in the prior three months. This was welcome news in the U.S. after recording a historic GDP decline in Q2 last week. However, with the extra $600 unemployment bonus ending last Friday, the fragility of the U.S. economy will be tested in the coming weeks while congress debates the form and function of further stimulus payments. A recent report from a private bank suggested unemployed Americans are spending 10% more than they were pre-crisis due to the extra benefits. Some of this stimulus money is finding its way into the stock market and helping to push growth stock valuations to the highest level since the tech bubble. This leaves the consumption-heavy U.S. economy, and its stock market, in a highly precarious condition as it faces the fiscal cliffs in the offing.
- After the duly forced closures of respective embassies last week, the U.S. administration again attacked the Chinese-owned social media app, TicTok, this time with specific demands that the company sell it’s U.S. subsidiary or risk being shut off. This had a perverse effect on the Chinese stock market where local traders began betting that the government will increase beneficial policies for local tech companies. Small tech companies on the Chinese ‘Star Market’ rallied Monday to the news.
- The financial media has drawn attention to the weakness in the U.S. dollar recently. July saw the greenback drop to levels not seen since 2018 with the realization that the extensive debt and deficit levels will be problematic for years to come. Interest rates, which served as one of the biggest attractions for foreign investors, at close to zero will also limit demand for the dollar going forward.
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There may be additional risks associated with international investing involving foreign, economic, political, monetary, and/or legal factors. International investing may not be for everyone. The information contained in this document is given on a general basis without obligation and on the understanding that any person acting upon or in reliance on it, does so entirely at his or her own risk. Any projections or other forward-looking statements regarding future events or performance of countries, markets or companies are not necessarily indicative of, and may differ from, actual events or results. This information is intended to highlight issues and not to be comprehensive or to provide advice.
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