Risk assets continued to recover but at a slower and more volatile pace than in May. Encouraging signs of gradual reopenings across the developed world and a commensurate rebound in economic activity indicators such as payrolls and purchasing manager indices were tempered by evidence of the pandemic gaining pace in a number of US states and its continuing spread in large emerging market countries such as India and Brazil. Regional flare-ups in other countries where the virus seemed to be under control such as China, UK, Germany and South Korea added to the concerns.
While the sharp rebound in activity indicators exceeded expectations, output and employment probably won’t return to pre COVID-19 levels until the end of 2021 at least. Both the IMF and the World Bank now estimate global growth for 2020 to be around-5%. The growth path for 2021 will depend much on whether the virus is contained or only controlled, whether fiscal support remains in place, whether business will start investing again and the extent to which permanent behavioral changes by consumers challenge established business models and lead to a lengthy structural adjustment process.
Monetary and fiscal support remained highly accommodative. The Federal Reserve committed to leaving its benchmark rate unchanged until at least 2022, the ECB conducted large scale refinancing operations at negative interest rates and the Bank of England increased the pace of quantitative easing.
Political tensions flared over the month, including protests in the US, a military confrontation between China and India, US tariffs on the UK and Europe being openly considered, China continuing to tighten its grip on Hong Kong as well as lack of progress in Brexit negotiations.
Mercer's Monthly Market Monitor provides an overview of global financial markets.
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