Technical factors favor an overweight on stocks and commodities. For Greg Meier (AllianzGI) the cyclical indicators suggest a rotation that could favor European stock exchanges
Since the beginning of June, since the activity of the main economies has resumed, the MSCI World index has above all recorded marginal movements while the infections have started to rise again, pushing several European and Asian countries and 10 US states to restore containment measures. “Measures that will damage some companies and communities but the effects on the economy as a whole should be less than those of new national lockdowns,” he says Greg Meier, Senior Economist Director di AllianzGI.
A QUESTION OF QUESTION AND OFFER
The expert recalls that, while the reopening allows to restore the supply of goods and services, the demand depends, this time more than ever, on the consumer confidence. “With this in mind, it is necessary to consider that an important share of consumers, that of the over 65, who spends much more than the under 25 (less at risk), has more chances of succumbing to the virus”, he explains Meier. If a vaccine or rapid containment of the disease does not arrive, the initial ‘V’ recovery of the economy could turn into a long process to repair structural damage. On whose duration the risks of permanent loss of will depend jobs, change in consumer behavior, closure of businesses and stress from authorities.
IMPORTANT MACRO DATA IS NEXT WEEK
Next week we will have new elements to better understand what to expect. On Monday, the state of health of the manufacturing activities in China and the United States, with the latter that, according to consensus estimates, should mark the highest levels since April 2019. Wednesday will be the turn of the data on retail sales of thearea euro. “The consensus estimates an increase of 15.8% m / m in June, but the y / y rate should drop from -5.1% to -7.5%” Meier specifies. The ISM index of US services will be released on the same day – representing around 70% of the US GDP – relating to the month of July. It is expected to remain in expansive territory (55.0 points) but in contraction compared to 57.1 in the previous month, incorporating the future damages related to the (re) closure of bars, gyms, restaurants and the continuing weakness of the travel segment.
FOCUS ON GERMANY EXPORTS AND THE USA LABOR MARKET
Finally, while on Thursday the details on the orders from German factories and monetary policy decisions in the UK, data on imports are expected on Friday Chinese exports, which should report a decrease of 10.0% and 1.5% yoy respectively. The details on the German economic recovery, which should show an acceleration of exports to 13.8% m / m and an increase in industrial production to 10%. Finally, on the same day, it will be known whether the consensus estimates of 2.26 million new jobs and a decrease in unemployment from 11.1% to 10.3% on the US labor market are correct.
THE RISK ON CONTEXT STILL HOLDS
“The risk-on environment still holds, with the dollar weakening and commodities rising. On the basis of cyclic indicators, there could be a rotation capable of favoring the European stock exchanges. Also because, i technological titles that continue to drive the American stock market are beginning to raise fears due to excessive valuations, “concludes the economist from AllianzGI.