Markets & Economy

Global Markets Weekly Update

July 31, 2020


Tech leads stocks higher in busiest week of earnings season

The major indexes ended mostly higher for the week, as investors reacted to a flood of quarterly earnings reports and some prominent economic data. Large-caps and growth stocks outperformed, putting at least a temporary end to the rotation into small-caps and value shares over the previous two weeks. Within the S&P 500 Index, real estate investment trusts fared best as longer-term bond yields fell, making their dividends more attractive in comparison. The much larger technology sector was also strong, helped by earnings beats from Apple and chipmakers AMD and Qualcomm. Energy stocks recorded the largest declines, dragged lower by Chevron and ExxonMobil following reports of steep second-quarter losses. Materials shares were also weak.

Corporate earnings were in the spotlight during the week, with 189 of the S&P 500 companies slated to post second-quarter results, according to Refinitiv. The imprint of the pandemic was clearly visible, with diversified industrial and materials companies such as 3M and Ecolab reporting sharp declines in revenues. Analysts polled by FactSet are predicting overall earnings for the S&P 500 to have declined by roughly 36% versus the year before, the biggest drop since the end of 2008. FactSet reports that more companies than usual have been beating estimates, however.

Tech giants continue to flourish as leaders are called before Congress

The week’s results also demonstrated that some major companies are benefiting from the pandemic’s impact on consumer patterns. This was on clear display Thursday evening, when Facebook,, Apple, and Alphabet (parent company of Google)—which together account for almost one-sixth of the market capitalization of the S&P 500—reported mostly healthy gains in revenues despite the pandemic. On Wednesday, the CEOs of all four companies testified in defense of their growing market power in front of a congressional antitrust subcommittee. Investors seemed generally relieved with the tone of the questioning, with the shares in all four holding steady or rising slightly in its aftermath.

Investors also kept a close eye on negotiations in Congress over a new stimulus package. T. Rowe Price traders noted that futures were higher before trading started Monday in expectation of the release of a plan from Senate Republicans, which was rumored to include new direct payments to lower-income Americans, as well as a revised supplemental unemployment package designed to replace 70% of an individual’s lost wages. Sentiment wavered later in the week as negotiations appeared to stall, even as current supplemental unemployment benefits of USD 600 per week were set to expire Friday. Political matters also took an unexpected turn Thursday morning, when President Donald Trump tweeted out the suggestion that the November elections might be delayed because of the alleged possibility of voting irregularities—an idea quickly rejected by Republican congressional leaders. 

Record contraction in the economy, but housing seems a bright spot

The week’s economic data seemed to generally weigh on sentiment. The biggest headline was the initial estimate of second-quarter gross domestic product (GDP), which showed the economy contracting at an annualized rate of 32.9%, slightly less than consensus forecasts but by far the largest retrenchment in modern history. The number of Americans seeking unemployment benefits for the first time ticked up for the second straight week—to 1.43 million—and continuing claims rose for the first time in two months. The housing market was a bright spot, with pending home sales rising in June for the first time in four months. The manufacturing sector also seemed to remain on the road to recovery, with durable goods orders expanding by 7.3% in the month, slightly above expectations. 

Longer-term Treasury yields fall to March lows

The economic data, election worries, and the uncertain fiscal backdrop pushed the yield on the benchmark 10-year Treasury note to its lowest level since early March. (Bond prices and yields move in opposite directions.) At its midweek meeting, the Federal Open Market Committee left the federal funds rate at its target range of 0.00% to 0.25%, as expected, and extended its emergency lending facilities through the end of the year. The municipal bond rally continued over the week through Thursday, aided by positive cash flows, light issuance of tax-exempt bonds, and the decrease in Treasury yields.

Overall volumes in the investment-grade corporate bond market were light as month-end buying drove most of the trading, but T. Rowe Price traders noted that primary market activity picked up following two weeks of modest issuance. Credit spreads—the extra yield offered over Treasuries and an inverse measure of the sector’s relative appeal—drifted marginally wider across most segments.

The firm’s traders reported that the high yield market was mostly focused on earnings releases, and there were few negative headlines. Exchange-traded funds were active buyers, although modest new issuance made putting money to work a challenge. According to J.P. Morgan, the number of high yield issuers suffering downgrades has declined markedly over the past three months after spiking in March and April. The energy industry has experienced the most downgrades in 2020.

U.S. Stocks



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This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.

Source of data: Reuters, obtained through Yahoo! Finance and Bloomberg. Closing data as of 4 p.m. ET. The Dow Jones Industrial Average, the Standard & Poor’s 500 Stock Index of blue chip stocks, the Standard & Poor’s MidCap 400 Index, and the Russell 2000 Index are unmanaged indexes representing various segments of the U.S. equity markets by market capitalization. The Nasdaq Composite is an unmanaged index representing the companies traded on the Nasdaq stock exchange and the National Market System. Frank Russell Company (Russell) is the source and owner of the Russell index data contained or reflected in these materials and all trademarks and copyrights related thereto. Russell® is a registered trademark of Russell. Russell is not responsible for the formatting or configuration of these materials or for any inaccuracy in T. Rowe Price Associates’ presentation thereof.


Equities in Europe fell on concerns about an economic recovery due to a resurgence in coronavirus infections, U.S.-China tensions, and disappointing company earnings. In local currency terms, the pan-European STOXX Europe 600 Index ended the week about 3.0% lower, Germany’s DAX Index fell 4.1%, and France’s CAC 40 slid 3.5%. The UK’s FTSE 100 Index dropped 3.7%.

Second-quarter company earnings fall short

European corporate earnings were generally downbeat in the second quarter, especially for banks. In energy, Royal Dutch Shell and Total proved resilient as strong oil trading revenues helped offset falling energy demand triggered by the pandemic. In autos, results from Volkswagen and Renault disappointed.

The German and French economies slumped in the second quarter as household spending, business investment, and exports collapsed during the coronavirus pandemic, according to preliminary data. Germany’s GDP shrank by a record 10.1% quarter on quarter, and in France, where restrictions were stricter, the economy contracted 13.8%.

UK’s Johnson: Signs of second wave of coronavirus infections

UK Prime Minister Boris Johnson said there were signs of a second wave of the coronavirus in Europe, as the rate of infections increased in the UK, Belgium, Germany, Spain, the Balkans, and other regions. He said that the UK would act quickly to prevent the spread of the virus, a statement followed by stricter self-isolation rules and more lockdowns in the north of England. Quarantines were imposed on travelers from Belgium and reimposed on those from Spain. Germany and France ordered mandatory testing for travelers from high-risk areas.

The Italian government will increase its latest stimulus package to EUR 32 billion, tacking on an extra EUR 7 billion as part of its effort to help the economy overcome the impact of the pandemic, Il Sole 24 Ore reported. The package, which will include measures to help the auto and tourism industries, is expected to extend conditional financing for temporary layoff schemes for an additional 18 weeks and offer tax breaks for companies to bring furloughed employees back to work.

ECB extends ban on bank dividends and buybacks

The European Central Bank (ECB) extended its recommendation to eurozone banks not to pay dividends and buy back shares until January 2021. It also allowed the banks to breach their liquidity and capital buffers to cope with the impact from the coronavirus. The ECB urged banks to exercise “extreme moderation” on bonuses. The ECB said it will review its stance in the fourth quarter.


Stocks in Japan recorded five consecutive daily declines and the worst weekly market return since April. The Nikkei 225 Stock Average fell 1,042 points (4.6%) and closed at 21,710.00. The widely watched market benchmark has returned -8.2% for the year-to-date period. The large-cap TOPIX Index and the TOPIX Small Index, broader measures of Japanese stock market performance, also posted steep losses. The yen strengthened and ended the week below JPY 105 per U.S. dollar, which has market participants rattled as currency strength will be a headwind for exporters.

Japan’s government slashes its growth forecast for 2020

The Japanese Cabinet Office lowered its GDP growth forecast for fiscal 2020, which ends in March 2021, to a 4.5% contraction due to the impact of the global pandemic. The latest forecast represents a steeper decline than in fiscal 2008 following the global financial crisis and represents a massive revision from the 1.4% growth forecast six months ago. The dour forecast reflects recessionary conditions and the likelihood of another round of stimulus. Looking ahead to fiscal 2021, the Cabinet Office believes that Japan’s economy will grow 3.4% if the coronavirus is contained and global economic conditions recover to a semblance of normalcy. Overall, the government forecasts are more optimistic than the projections of analysts in the private sector and the Bank of Japan. Both expect a significantly larger contraction in fiscal 2020, which implies that the government remains more optimistic about the effectiveness of the ongoing and future stimulus efforts.

Fitch Ratings lowered its Long-Term Foreign-Currency Issuer Default Rating to negative from stable on July 28 but maintained the country’s “A” sovereign debt rating. The rating agency said that the negative outlook was the result of a combination of Japan’s higher debt ratio and downside risks to the country’s medium-term macroeconomic outlook. Fitch Ratings projects an increase in Japan’s fiscal deficit in 2020 and 2021 and further increases in Japan’s public debt/GDP ratio, which was already the highest among developed markets. The rating agency said, “…we expect an ageing population and declining work force, together with lingering supply side damage from the coronavirus, to weigh on Japan's medium-term growth potential.” Japan’s government has already spent USD 2.2 trillion on stimulus to address the coronavirus crisis, but analysts believe the massive amount of public debt constrains the government’s ability to increase fiscal spending that is needed to reinvigorate economic growth.

Tokyo reports record new coronavirus infections

Tokyo Governor Yuriko Koike confirmed that there were 463 new coronavirus cases in Tokyo on July 31, which was up from the prior day’s record 367 infections. The governor said if the situation gets any worse, she will consider issuing a state of emergency for the city independent of the central government. Koike has requested that bars and karaoke parlors close early (at 10 p.m.) and offered to pay a JPY 200,000 (USD 1,900) incentive to each business adhering to the recommended virus-prevention guidelines. According to the Kyodo News, Japan's daily new coronavirus cases topped 1,300 on Thursday, raising concerns of a nationwide resurgence of infections. Kanagawa, Hyogo, Tokushima, Fukuoka, and Okinawa prefectures each reported a record number of infections on Thursday.


Mainland equity markets rallied on positive data despite elevated U.S.-China tensions and floods in the country’s Yangtze River basin. The large-cap CSI 300 Index rose 4.2%, and the benchmark Shanghai Composite Index gained 3.5%, reversing the previous week’s declines. A-share funds suffered outflows during the week after a correction the previous Friday, with institutional outflows outweighing retail investor inflows. Northbound Stock Connect (investments in mainland stocks by Hong Kong-based foreign investors) saw significant net outflows, especially in financial stocks. 

Yangtze floods raise disruption fears

Heavy rains in the Yangtze River basin and flooding across central China increased worries about the disaster’s potential impact on the economic recovery, including the prospect of supply disruptions leading to higher food prices and fanning inflation. Despite the severity of the floods, most analysts expect that their impact on China’s GDP will be small, barring a major dam collapse or similar disaster.

China’s official purchasing managers’ index readings for July were positive despite a resurgence in coronavirus outbreaks in some areas. New orders rose 0.3%, boosted by a 5.8% surge in export orders. June industrial enterprise sales and profits were also positive. Industrial profits accelerated to 11.5% year on year from 6% in May, reflecting a recovery in industrial output and easing factory gate deflationary pressures. Data suggest that the pace of China’s recovery remains uneven, however, as smaller manufacturing firms lag larger state-owned enterprises. 

Unlocking of restricted A-shares creates potential headwind

Investors were braced for a record RMB 1.36 trillion of restricted shares scheduled to be unlocked and available for trading in the A-share market—an influx similar to one that occurred in May and June 2015, which was followed by heavy selling of previously restricted shares by large institutional investors. Some analysts believe that lower current valuations and positive fundamentals might provide institutional holders less reason to sell unlocked shares, however.

Other Key Markets

Mexican shares drop on economic data

Stocks in Mexico, as measured by the IPC Index, returned about -0.6%. Equities edged higher in the first half of the week but fell in the second half in response to gloomy news about Mexican economic activity. According to the country’s official statistics agency, GDP dropped 17.3% from its first-quarter level. While this was mostly in line with consensus estimates, it’s worth noting that it consolidates a fifth subsequent quarterly contraction that began well before the pandemic hit.

On a positive note, data releases for June suggest the economy has already bottomed out. For example, earlier in the week, the government reported a USD 5.5 billion trade surplus for the month, which was much better than expected. T. Rowe Price Emerging Markets Sovereign Analyst Aaron Gifford notes that the underlying figures were quite upbeat as well, with exports surging 75.6% month over month, even if they were still down on the year, and imports lagged considerably. While the health impact of the coronavirus on Mexico has been substantial—with more than 416,000 confirmed cases and about 46,000 fatalities, according to the latest Johns Hopkins University data—the trade surplus is a sign that the country may be benefiting from a North American supply chain resurgence as economic activity in the region begins to normalize.

Turkish shares fall on worries over foreign exchange reserves

Turkish stocks, as measured by the BIST-100 Index, returned about -5.5% through the close of business on Thursday. The market was closed for a holiday on Friday. Shares fell sharply amid concerns that Turkey’s central bank is depleting its foreign exchange reserves that are used to stabilize the lira in world currency markets. The lira also fell and sovereign bond yields climbed in response to these concerns. The central bank’s latest projection for Turkey’s inflation rate at the end of 2020—8.9% versus a previous 7.4% estimation—also weighed on Turkish assets, as it could prevent the central bank from reducing its benchmark interest rate to further stimulate the economy. The one-week repo rate currently stands at 8.25%. Concerns that the U.S. might impose sanctions against Turkey for last year’s purchase of Russia’s S-400 military hardware or, more recently, for its involvement in a Libyan civil war also hurt investor sentiment.

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