07 August 2020
4 minute read
As financial markets look for signs of the pace of the recovery, preliminary second-quarter gross domestic product (GDP) data from the eurozone and the UK will be a reminder of the weakness faced under strict lockdown measures.
Both the US and China rely heavily on their consumers. Retail sales data in recent months have shown signs of recovery for both superpowers, and July’s retail sales will matter. The numbers will flag the effect that the US moving out of containment measures had on sales, amid infection spikes seen in several states.
A similar outcome can be expected from industrial output data, with both US and Chinese activity recovering in June to 5.4% month-on-month and 4.8% year-on-year, respectively.
Thursday’s initial US jobless numbers will be another focal point in determining the health of the labour market, especially as stimulus payments for workers have so far not been renewed. Prior weeks showed weakness as claims remain near record highs as the number of cases continues to increase.
Unlike the US, in the UK furloughed employees are not termed unemployed. This helps to explain why the unemployment rate has remained close to all-time lows despite the pandemic and quarantine measures. While the International Labour Organization unemployment rate for June is likely to show a similar story, the market will be looking at how the number of workers being employed and available vacancies are responding to the gradual lifting of the measures in recent months.
Globalisation, as measured by growth in global trade volumes, has plateaued in recent years, though from relatively elevated levels. Increased globalisation over the last few decades resulted in more global coordination, higher growth and lower cost-induced inflationary pressures, driven by access to a larger pool of cheap labour from emerging economies. However, wider inequalities and more social tensions have been seen over the same period. In particular, western voters have shown increased support for populist leaders favouring more protectionist policies.
The crisis triggered by the pandemic may have been the final nail in the coffin for globalisation. Just like in 2008-2009, as economic growth weakens, demand for goods and services falls and trade suffers.
However, because of its unique characteristics, the COVID-19 crisis also highlighted the challenges posed by deeply interconnected supply chains. As countries quarantined at different times, supply chains quickly went from full production to a stop, inducing a worldwide collapse in economic activity.
The World Trade Monitor data series from the Netherlands Bureau for Economic Policy Analysis (CPB) highlights how lockdowns and weakness in supply chains led to an economic slowdown and a collapse in trade. While, back then, it took only a couple of years for global trade to recover, this time the rebound may be much slower.
The data shows world trade growth during the early stages of this crisis at fresh lows versus the peak of the 2008 financial crisis.
With the US election fast approaching, polling suggests that the Democrats are well positioned. Volatility and dispersion of sector and stock returns look set to increase in the run up to election day, whatever the outcome.
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