Weekly multi-asset desk views

Weekly Review: 7 August 2020

Weekly Mag updates

Summary

  • COVID-19 update: US case figures continue to decline as the second wave picks up in the EU
  • PMIs point to a continued recovery, US weekly initial jobless claims bounce back and political tensions simmer

Market and economic review

Market sentiment has been driven by a number of factors this week with virus figures pitted against economic data releases. COVID-19 developments have been varied with the US continuing to bring caseloads under control, whilst Europe showed some signs of a second wave.

Meanwhile, with the majority of S&P 500 companies having already reported earnings and ‘big tech’ still very much driving performance in the US, data releases this week continued to frame the investment backdrop; final July PMIs struck an expansionary note and US employment figures also improved. Meanwhile, political tensions between the US and China continued to flare up as hope of further fiscal stimulus faltered in the background with the Republicans and the Democrats yet to agree on a deal.

Covid-19 update: US case figures continue to decline as the second wave picks up in the EU

Global cases reached over 19m this week according to Bloomberg, with figures being driven by India, Latin America and the US. In the US, caseloads are still being led by the ‘sun-belt’ states, although there is a downward trend in cases at an aggregate level, whilst deaths appear to have peaked.

Elsewhere, in the EU there is a resurgence of the virus with Germany, France and particularly Spain grappling with a flare-up in caseloads. Whilst the pickup in cases is far from first wave rates, it does highlight the difficulties of supressing the virus without a vaccine. On that front, positive news releases continue to buoy markets, with Novavax announcing that their experimental vaccine generated antibody responses four times higher than those seen in people who had recovered from the disease. Meanwhile, further containment measures continue to be announced with the UK imposing localised lockdown measures and Amsterdam enforcing masks in crowded areas.

PMIs point to a continued recovery, US weekly initial jobless claims bounce back and political tensions simmer

As we moved through the week, economic data releases continued to paint a balanced picture, with some backwards-looking indicators further revealing the improvement in the state of the global economy. Following the preliminary PMI prints hitting expansionary territory last week, finalised PMI data this week in both the euro area and the US tracked closely to the flash readings. Meanwhile in the US, the ISM services reading was much stronger at 58.1 versus the 55.0 estimate, perhaps providing some indication of a return to activity as the rate of infection shows some signs of decline.

Staying with the US, initial weekly jobless claims fell more than expected last week to the lowest level since the pandemic started in a broad decline across nearly all states, suggesting that the labour market is improving. The print came in at 1.19m versus an expected 1.4m and follows two consecutive weeks of increasing figures. These prints were followed by the much-anticipated US payroll figures for July which showed a 1.8m increase versus consensus estimates of +1.6m after last month’s blowout 4.8m increase, reducing July’s unemployment rate to 10.2% from 11.1% in June.

In other US developments, US-China tensions continue to boil ahead of Phase 1 trade deal talks in mid-August as President Trump imposes further sanctions on Chinese state-owned companies, following the reciprocated closure of the US Consulate in Chengdu, China.

Outlook

The calendar next week looks to be a lighter one as market sentiment continues to be driven by virus developments across the globe, along with the associated impact on economic activity shown in the high frequency data. Whilst we are in the tail end of the earnings season, a small number of company prints will be released next week.

In terms of data, Tuesday will see employment-related prints for the UK and Europe, along with the closely watched US weekly initial jobless claims on Thursday. Next week will also offer further insight into the extent of the economic contraction in the UK, with June’s monthly GDP reading as well as a preliminary Q2 GDP reading. We will also see the preliminary Q2 GDP release from the Euro area.

Turning to US politics, Democratic presidential nominee, Joe Biden, is expected to announce his choice for the vice presidency next week. Meanwhile negotiations for a new US fiscal bill will continue, after significant differences remained this week between the Democrat and Republican proposals.

 

Important information

5-year performance record to 30 September 2020

  Calendar year returns   12-month rolling returns  
  2019 2018 2017 2016 2015   2019-2020  2018-2019  2017-2018 2016-2017 2015-2016 Currency
Insight's broad opportunities strategy (pooled) (GBP) 13.13 -4.99 10.13 5.05 -1.19   -3.60 5.80 2.18 6.82 5.45 GBP
3-month GBP LIBID 0.68 0.60 0.23 0.38 0.45   0.36 0.70 0.50 0.21 0.42  


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