28 May - update from our investment partner

  • 28th May 2020

What has happened

Despite a dip in markets caused by increased US/China tensions, US markets retained their buoyancy and rallied to close up almost 1.5%. With the rally yesterday, the US market is now ‘only’ 6% down since its levels at the start of the year.

Hong Kong no longer autonomous in the US’s eyes

Secretary of State Pompeo said yesterday that the US had certified Hong Kong as no longer autonomous from China. This is expected to have an impact on Hong Kong’s special trading status with the US with Donald Trump hinting that an announcement on this may be issued shortly. In addition, the US House of Representatives passed almost unanimously (413-1) the Senate’s bill to authorise sanctions against Chinese officials involved in alleged human rights abuses against Muslim minorities. The market is still trying to weigh up how far Donald Trump and the White House will go with this re-escalation of tensions. Whilst there is clearly political capital accrued in being tough on China there will be concerns that increased tensions may damage the US economy which is in the early stages of restarting. A weak economy has traditionally led to incumbents failing to be re-elected and Donald Trump will be wary of this.

EC unveil their plan

The European Commission unveiled their €750bn proposed package yesterday which contained €500bn of grants and €250bn of loans. The so called Frugal Four have already balked at the idea of offering grants so we do not expect this to be the final plan for the recovery fund. Effectively the EC proposal is just the Merkel/Macron plan with an additional €250bn of loans bolted on top so it was always unlikely to be welcomed when Austria had already effectively rejected the former plan.

What does Brooks Macdonald think

We expect EU recovery fund negotiations to continue well into the second half of this year and with every passing week for the delay to have increasingly negative consequences for EU solidarity. Without the fiscal and monetary coordination the European recovery will be slower than the rest of the world but within Europe there will be a sizeable difference between the economic fate of those with sufficient firepower to arrange their own fiscal packages (i.e. Germany) and those that cannot (i.e. Italy).

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.