30 July - update from our investment partners

  • 30th July 2020

US equities push forward after uncertain week

What has happened

As widely expected, there was little news out of the US Federal Reserve last night with the major announcement, extending asset purchases, occurring on the first day of the meeting. The overall more cautious tone of Jerome Powell however, and his focus on further fiscal and monetary spending, helped US equities to push forward after a week of to-and-fro.

Federal Reserve meeting concludes

With the Fed choosing to unveil no further stimulus at the end of their July meeting the baton is being passed to September. This is also expected to be the meeting where the Fed's policy review is revealed. As part of this the Fed is slated to move to an 'average' inflation target meaning they have the flexibility to allow inflation to move above the target level over the short term given it has been below the target for much of the post GFC era. This is expected to have two effects, allow the central bank to remain loose in monetary accommodation even if we see a pick up in inflation and also support inflation expectations over the longer term which is important to drive consumption. Under the context of this review the Fed may decide either to provide more supportive forward guidance or increase the size of asset purchases.

COVID update

The overall number of daily US new cases picked up yesterday however the hot spot states continue to see some improvement. As expected, the hot spot states are seeing a pick up in fatalities but this acts with a lag to new case growth and is still well below the levels seen in the earlier wave of the pandemic. Investors will be expecting the slowing of new cases to reduce these fatalities figures over the next fortnight even as Texas overtakes New York as the most infected state in the US.

What does Brooks Macdonald think

US stimulus is still the strongest positive driving force in markets today and whilst the Fed meeting was not ground-breaking it did signal that further support was available. This may become important as US fiscal stimulus news looks less likely in the very short term. White House Chief of Staff Mark Meadows said yesterday that the two sides were 'nowhere close to a deal'. Our base case remains that some deal will be agreed but the timeline is uncertain.

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.