26 June - update from our investment partner

  • 26th June 2020

What has happened

The US equity market staged a late rebound yesterday whilst new case growth continued to rise. Europe had a strong day even before the turnaround in US appetite with the broad European index up almost three quarters of a percent.

Texas reacts

The Governor of Texas has halted the reopening of the state’s economy in light of new daily cases topping 5,000 for the fourth day in a row. Elective surgeries have also been suspended to free up room within Houston hospitals but CEOs stressed late in the equity session that there was still sufficient intensive care capacity. It was this news story that supported risk assets suggesting that Texas’s actions were proactive rather than too little too late. Florida also saw a 4.6% daily increase yesterday, showing the percentage growth rate is continuing to expand. With almost 40,000 cases a day in the US, a new daily high, the virus is still a major risk to sentiment.

Bank regulation is softened

Overnight we also saw a revision to the US Volcker Rule overseeing the demarcation of bank activities. The changes will allow banks to increase their business with certain categories of funds and reduce their margin requirements when dealing with affiliates. There were some quid pro quo tightening of other regulations within the Volcker rule however the net effect is a positive one for bank profitability. The softening of the requirements should help bank margins and led banks to outperform the broader US index yesterday, European banks have also felt some of this positivity in a rally in their share prices.

What does Brooks Macdonald think

The market certainly has a two-way tension now and this can be seen in the range bound markets we are currently experiencing. Tellingly whilst indices have been trading within a tight spread, expected volatility remains highly elevated reminding investors of the risk of a break out to the upside or downside. US new case growth will continue to be the driver for markets but the halting of the Texas reopening is helpful for markets as it suggests that state governors won’t blindly proceed with easing lockdowns if the case growth continues to rise.

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.