28 July - update from our investment partners

  • 28th July 2020

European markets soften amid rise in virus cases

What has happened

European markets were softer yesterday as investors digested the latest pick up in viral cases in Spain, France and Germany. Whilst the European index closed in negative territory this was on small volumes and stands in contrast to the US where indices rose to secure a year-to-date gain.

A big week for Technology

The rally in the US reversed the declines we saw on Friday and was led by a recovery in US large cap technology stocks. This comes ahead of the earnings for Alphabet, Amazon and Apple which are released tomorrow. These three companies make up c. 13% of the MSCI USA, and an even greater percentage of the gains made by the US index year-to-date, so are essential to the ongoing momentum of US risk assets. As of last Friday, 81% of US companies have beaten market expectations for their earnings with just over one quarter having reported. A lot of the earnings surprise has been driven by the Health Care and Information Technology sectors so investors will be watching the Tech heavyweights closely to see if they continue the trend.

US Fiscal stimulus is unveiled

Senate Republicans released their opening proposals for a c. $1tn fiscal stimulus package yesterday. There appears to be a fair bit of work to do to even get the Republicans on board however, with Senator Lindsey Graham saying last weekend that half of Republicans in the Senate would vote no on any additional stimulus. The Speaker of the House of Representatives, Nancy Pelosi, said that whilst she was unimpressed by the first draft of the bill, she would work with the Republicans in the Senate to find a compromise. The current target date for the stimulus being enshrined in law is the end of next week so time is short and with a presidential election looming there will no doubt be plenty of room for politics.

What does Brooks Macdonald think

Any increased chance of a delay in US fiscal spending will put pressure on Jerome Powell and the Federal Reserve to deliver additional support to markets. Whilst US case growth does appear to be improving, the economy remains highly vulnerable to economic shocks. Tomorrow's Fed meeting, and tech earnings, will be an important milestone for risk assets over the summer.

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