8 July - update from our investment partner

  • 8th July 2020

Read what our investment partners think of global market activity yesterday

What has happened

The continued rise of US markets faltered yesterday as sentiment was dampened by a series of news stories. The US index fell by just over 1% ending the 5-day streak of positive gains it had previously enjoyed.

US/China and US/COVID

The first news story was that the Trump administration was pondering ways to undermine the Hong Kong dollar’s peg to the US dollar in order to put pressure on China now the National Security Law has been passed. There was some suggestion that this was in its early stages given it hadn’t progressed to senior levels in the White House but reminding investors of this risk as COVID-19 risks remain was unwelcome. US new case growth continued to weigh on markets with Texas and California both seeing over 10,000 daily new cases and Florida just shy of that figure. Fatalities are still lagging case growth and are lower than would be implied by the first wave of outbreaks in April/May. This is likely due to a combination of younger demographics being infected in this wave and hospitals becoming better at tackling the virus in patients.

Economic data wobbles

Yesterday saw poorer than expected German industrial production which comes after disappointing factory orders. Both suggest that the German recovery may be slower than investors had previously hoped for. Atalanta Fed President Bostic also warned that high frequency US data was pointing to a ‘levelling off’ of activity. The recent slowing of lockdown easing will be part of this but one should read this comment in the context of the surprisingly rapid rise in employment that we have seen in the non-farm payroll reports. Of course, if the Fed are becoming more cautious it makes it more likely that they will look to additional asset purchases which could help create a floor to equity markets from here despite worsening data.

What does Brooks Macdonald think

US/China, US/COVID and German data all provide a strong counterbalance to the highly supportive policy currently in place globally. Markets will be watching closely to see whether these wobbles are met, yet again, by overwhelming force of stimulus. If so, equity market bystanders could be surprised at the quantum of bad news that risk assets can look through.

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.