25 June - update from our investment partner
- 25th June 2020
What has happened
After showing remarkable resilience in the face of US new case growth, markets finally snapped with a sell-off in risk assets. The US equity market continued its sell-off after the European markets closed meaning that European indices are playing catch up this morning.
US cases stubbornly rise
Florida saw its new case growth rise by 5.3% and California a rise of 4.8%. The percentage growth rate for these states have hovered around 3% so this latest surge is undoubtedly worrying markets. Whilst new cases have picked up, fatalities have not yet, suggesting that hospitals are becoming better at treating the virus. It will be vitally important for risk appetite as to whether fatalities stay at their lower level.
US political fallout
As the virus continues to take a hold in the US, the polling odds continue to deteriorate for Donald Trump ahead of the November Presidential election. Whilst there is a long time left it will be important to see if this has an impact on China hawkishness in the White House. We saw yesterday the Pentagon listing 20 Chinese companies that are alleged to be controlled by the military of China. This list includes Huawei as well as some listed on US exchanges. Risk appetite will be able to absorb these sorts of headlines however should we see an escalation, as Donald Trump seeks a populist push, this could test equity valuations.
What does Brooks Macdonald think
The abundant liquidity on offer from governments and central banks, alongside the valuation argument for equities vs bonds, help drive the medium and longer term direction for markets but cannot stop a turning of sentiment. As new cases grew over the last few days, investors were content to look through the figures however the latest surge has unsettled the risk asset narrative. A key question will be whether we see an equally large increase in fatalities as that will be the figure that largely determines the state by state response in terms of returning to restrictions. Healthcare systems have become far better at tackling the virus including the breakthrough around steroid treatment for patients on ventilators that markets welcomed in the last fortnight. This should mean the second wave is less deadly than the first and therefore restrictions can be less draconian but investors will be keenly watching these statistics for evidence that these hopes are well founded.
Any news or resources within this section should not be relied upon with regards to figures or data referred to as legislative and policy changes may have occurred.