7 July - update from our investment partners

  • 7th July 2020

Read our latest market update from our investment partner

What has happened

Markets remained upbeat after the Chinese government’s tacit endorsement of the equity rally yesterday. The US index has now risen for 5 trading days in a row and the US technology sector continues to reach all-time highs.

US data improves

Risk assets were also supported by the ISM non-manufacturing index which beat expectations by a sizeable margin. The headline number was 57.1 vs 50.2 with any number above 50 implying an expansion in the non-manufacturing sector. Whilst this is undoubtedly positive below the headline the employment element was less impressive. There is also some caution around whether these numbers will endure given the stubbornly high US infection rates. If we see an increase in lockdowns or expectations of lockdowns these forward-looking activity indicators could return to contractionary levels.

US fiscal stimulus builds

To add to this more constructive mood Senate Majority Leader Mitch McConnell said that he believed another round of stimulus would be passed this month. The Democrat plan worth around $3.5tn which has been passed in the House of Representatives is viewed as a non-starter by the Republicans with their proposed package reportedly worth around $1tn. There is quite a narrow window left near-term to pass this legislation, given the two week Independence Day recess and the August recess. The net result is that Congress has just 11 days (20-31 July) for both chambers to agree on a compromise bill.

What does Brooks Macdonald think

With US new case growth showing no signs of slowing down it remains crucially important that markets perceive governments and central banks as highly supportive. The relatively narrow window to agree a new fiscal package in the US raises risks particularly given the higher probability of partisan politics given the proximity of the November Presidential election. In terms of the UK package being assembled by Chancellor Sunak, more policies are being leaked as the Wednesday announcement approaches. These include measures to improve the number of traineeships, investment into environmental projects and a bailout for the cultural arts sector. Given the comparatively conservative stimulus numbers likely to be unveiled tomorrow, UK investors may well need to move their hopes of greater government support towards the Autumn budget.

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.