29 July - update from our investment partners

  • 29th July 2020

Quiet day as markets wait on second wave concerns

What has happened

Yesterday was quiet in markets but there was a taster of things to come with a Federal Reserve announcement on the first day of their July meeting. Despite the extension of the central bank's emergency lending programmes, US equities ended down with Technology shares reversing their gains from Monday.

Federal Reserve easing

Traditionally the Fed make policy announcements at the end of their two-day meetings however during the COVID-19 pandemic the central bank has been keen to provide support on an ad hoc basis. In part this is to reassure markets that the bank is watching liquidity and market conditions with the ability to act rapidly as needed. The other benefit is that it reduces expectations for the actual meeting itself, avoiding market volatility around the traditional decision point. Yesterday the Fed announced that it would extend most of the pandemic emergency lending programmes until the end of the year. As a result, we are not expecting any major announcements to come from the meeting today bar the overall tone being one of caution, reflecting the pick up in US case growth since the June meeting.

Second wave watch

Several European countries have made moves to contain what could be the beginning of a European second wave. Greece and Madrid haves reimposed mandatory face coverings in public places with the latter also placing limits on the size of gatherings. The backlash from the UK's rapid imposition of travel restrictions continues both from politicians in Spain but also the travel sector. In the US, the hot spot states are continuing to see an improvement in new cases with California and Arizona seeing the pace of growth slow. In aggregate the US is still seeing around 60,000 new cases per day which is dramatically higher than the level only a month ago.

What does Brooks Macdonald think

Whilst the start of the week was a quieter affair, with a Fed meeting and the tech heavyweights reporting earnings over Wednesday and Thursday the latter half is expected to be more eventful. The lending programme extension from the Federal Reserve was widely expected but is a nod to the ongoing uncertainty around the US economy given the recent second wave concerns. Markets will be watching closely to the tone of Powell's press conference to check he stands ready to act if data worsens.

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