6 August - update from our investment partner

  • 6th August 2020

Positive US economic data beats, progress on vaccine developments and signs that a US fiscal package may be nearing all helped sentiment yesterday.

What has happened

Services PMI data came in broadly in line with expectations in Europe but saw a sizeable beat in the United States. This helped the US rally further, with the index now within a small distance of its all-time high. The rally had a significant cyclical tilt with sectors such as capital goods and automotives outperforming their more defensive peers.

PMI data

(Please take a look at Tuesday’s Investment Bulletin for a recap on what the PMI surveys are and what they can helpfully tell us.) Wednesday saw the Services PMIs released with the Euro Area and the UK seeing expansion in line with the flash estimates a few weeks earlier. It was the US ISM services reading which impressed the market however, coming in at 58.1 vs 55, with any figure above 50 implying an expansion. This was the highest level we have seen since February 2019 when sentiment was supercharged by the change in Fed policy, reversing quantitative tightening. The employment sub index remains lacklustre, a theme across the developed world, but new orders implied a strong level of expansion.

European cases continue to pick up

Yesterday’s COVID-19 news flow was mixed with positive stories around the Novavax vaccine, which saw a strong immune response, being offset by a rising trend in European cases. The two-week average number of cases per 100,000 people has increased across many countries according to ECDC data. In Spain the 14-day average/100,000 is now 78.2 compared to 10.6 at the start of July. The French equivalent shows 22.4 vs 10.6. Whilst these figures are well below the United States (264.1 vs 150.9) the pace of increase and trajectory is of concern to markets. There are signs that this has started to impact business sentiment and may be a factor in the slight weakness of the European PMI surveys vs the Flash estimates a few weeks ago.

What does Brooks Macdonald think

Positive US economic data beats, progress on vaccine developments and signs that a US fiscal package may be nearing all helped sentiment yesterday. Depending on the speed of vaccine development, markets could start to look through some of these rising European cases, that said there are still some concerns about how quickly vaccine production can ramp up even post successful Phase III trials. The interplay of vaccine development and viral spread will remain a key pivot for markets.

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.