14 July - update from our investment partner

  • 14th July 2020

Read the latest from our investment partner about the global financial markets.

What has happened

After a positive start, global equity markets faltered as the two core risks to markets flared up again. The US index was initially up around 1.5%, to a post-pandemic high, before closing down almost 1%.

US Cases catalyse closures

In California after a record number of people were hospitalised on Sunday, the governor has rolled back reopenings and closed higher risk indoor businesses. The largest school districts in California will also not open in the autumn and remain fully remote. In Florida new case growth increased by 4.7% which is above the 7-day average and means the number of daily cases is doubling roughly every 15 days, at the current pace. Proportional to its population, the US continues to be one of the hardest hit nations with the pace of growth yet to show signs of slowing.

US/China tensions increase

There was also an escalation in US/China tensions with the US reacting to the Chinese sanctions against several US lawmakers. China said that they would place sanctions on 4 US individuals including former presidential candidates Rubio and Cruz. This itself comes after the US placed sanctions on a number of Chinese officials last week over alleged human rights abuses in Xinjiang. Further to the latest Chinese move, Secretary of State, Michael Pompeo, weighed into China’s claim to the South China Sea saying that Chinese actions were ‘unlawful’ and amounted to ‘bullying’. Traditionally the US has chosen not to take sides over this politically sensitive region so this is a further example of the US being willing to intervene in what China views as internal affairs.

What does Brooks Macdonald think

The war of words between the US and China will inevitably escalate as the November election approaches but with the US being forced to reverse some of the lockdown easing, the economy would not welcome a return to tariffs. This is the base case for markets at the moment with the risk of US/China bubbling over a tail risk rather than an inevitable conclusion of the current step up in rhetoric. This however remains a risk to watch as if Donald Trump calculates that the economy will remain weak coming into the election, and that heightened tensions with China is one of the few levers remaining, market sentiment could be tested.

All data and figures referred to in our news section are correct at the date of publishing and should not be relied upon as still current.