World stocks struggle as economies shrink sharply

Updated 01 Aug 2020

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Pedestrians walk past an electronic quotation board displaying share prices in Tokyo on Friday. — AFP
Pedestrians walk past an electronic quotation board displaying share prices in Tokyo on Friday. — AFP

LONDON: World stock markets were little changed on Friday after almost unremitting bad news of rapidly-shrinking economic activity, highlighting the “devastating impact” coronavirus has had on the global economy, analysts said.

A tweet from US Pres­ident Donald Trump suggesting delaying Nove­mber’s elections also jolted investors, helping send the euro soaring to a two-year peak at $1.1909 in early Asian deals.

Markets in Europe were digesting massive double-digit falls in economic output as well as a swathe of mostly grim corporate earnings which only further highlighted the damage done by the virus.

France’s economy contracted by a record 13.8 per cent in the second quarter, Spain slumped 18.5pc, Portugal contracted 14.1pc and Italy shrank 12.4pc.

Europe as a whole was hammered by its sharpest rec­orded contraction in the second quarter, with GDP down 12.1pc in the eurozone and 11.9pc across the full EU.

Gains in the techs helped provide some support but not enough to make a huge difference at the end of yet another turbulent week.

The tech-rich Nasdaq Comp­osite Index led the US market, adding 0.8 percent in early trade after tech gia­nts Amazon, Alphabet, Apple and Facebook all reported better-than-expec­ted results as the sector looks to be the big winner amid the pandemic upheaval.

Analysts had questioned whether tech shares could go higher still after the results came in, but Ama­zon, Apple and Facebook all won big gains early Friday, while Google-parent Alphabet fell.

Historic contractions

“GDP figures released today confirmed the devastating economic impact of the pandemic,” noted Oxford Economics analyst Rosie Colthorpe.

“Today’s GDP figures all showed historic contractions in output but that the pandemic has caused such massive economic damage is not a surprise.” The effect of Covid-19 on the US economy was even more marked than in Europe with a 32.9 percent contraction between April and June as businesses were shut down to prevent the spread of the killer disease.

That was the worst US quarter since records began in the aftermath of World War II.

The numbers added to fears about the long-term economic impact of Covid-19 and overshadowed a better-than-forecast read on Chinese factory activity that suggested the country is slowly emerging from the crisis.

“It was a grim day at the office for the global economy... as the extent of the Covid-19 damage was laid bare,” said PVM analyst Stephen Brennock.

“Europe’s biggest economy shrunk by ... the biggest fall since 1970 and wiped out nearly a decade of German growth.

“Likewise, US GDP contracted by a whopping 32.9pc at an annualised pace over the same period. The slump was slightly less than feared but still the worst since government records began in 1947.

“What is more, this puts the world’s biggest economy firmly in recession after posting negative growth in the first quarter.”

In Asia, Tokyo and Sydney were worst-hit with traders worried about a fresh spike in infections in both countries.

Gold set for best month in 4 years

In London, gold rose on Friday, trading near its all-time peak, as a sliding dollar and dire economic numbers from far and wide sparked a rush to safety in bullion, which is on course for its biggest monthly gain in over four years.

Silver climbed 2 per cent to $23.94 per ounce, on course for a monthly rise of 33pc, its largest on records going back to 1982, supported by investment and industrial demand. Spot gold gained 0.5pc to $1,969.22 per ounce by 10:56 am EDT (1456 GMT), while US gold futures rose 0.9pc to $1,985.00.

Published in Dawn, August 1st, 2020