Weekly Market Recap

Surprise, surprise

24/08/2020

Week in review

Australia preliminary retail sales 3.3% m/m in July
Japanese economy shrinks 27.8% q/q in second quarter
U.S. Fed minutes dovish on outlook

Week ahead

Australia capital expenditure
U.S. consumer confidence
Germany Ifo survey of business sentiment

Thought of the week

Last week, the S&P 500 made a new high for the year, reversing all the losses from the COVID induced market collapse. This makes the rally from the March low the quickest turnaround from a bear market out of the last seven. Understandably, investors may be fretting over the pace and breadth of the market move when compared to the state of the U.S. economy. However, what moves markets is not the absolute level of the many indicators investors watch but the degree of surprise. Even though earnings declined by 35% compared to a year ago in second quarter U.S. earnings season, 83% of companies beat on earnings, and actual results were 25% higher than expectations. Furthermore, the Citi Economic Surprise Index, which measure the degree to which economic data is better or worse than forecasts, is over 200. Never before has this index managed to breach 100. The surprises can’t last forever.

Surprise, surprise
U.S. Citi Economic Surprise Index

Source: Citi, FactSet, J.P. Morgan Asset Management, all returns in local currency unless otherwise stated.
Equity price levels and returns: Levels are prices and returns represent total returns for stated period.
Bond yields and returns: Yields are yield to maturity for government bonds and yield to worst for corporate bonds. All returns represent total returns. AusBond Comp is the AusBond Composite 0+ Yr, AusBond IG is the AusBond Credit 0+ Yr both provided by Bloomberg.
Currencies: All cross rates are against the Australian dollar. An appreciation of the foreign currency against the Australian dollar would be positive and a depreciation of the foreign currency against the Australian dollar would be negative.

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