3 August - update from our investment partner

  • 3rd August 2020

What are investors looking at this week?

What has happened

August has begun with a mixed picture for equities as risk appetite digests the latest uptick in US/China tensions and investors await US fiscal stimulus.

US targets Chinese technology firms

US Secretary of State Pompeo said that the White House would announce restrictions on a ‘broad array’ of Chinese owned software companies over coming days. The Technology sector appears to be a primary battleground between the two superpowers given its shaping of infrastructure and increasing share of global economies. On Friday President Trump threatened to ban TikTok from the US whilst a bid circled from Microsoft. Whilst the national security concerns have been circling for a while regarding Chinese tech firms with US data, some have pondered that this may be a slightly more cynical tactic to secure a better price for the US technology giant.

Key week for global data

The tone this week is likely to be set by the PMI surveys which are being released around the world today. These are diffusion indices so mainly tell investors whether things are better or worse from last month rather than giving you an absolute level of economic growth which you can use for historical comparisons. What investors will be looking at however, is whether there is a large disparity between the pick up in economic momentum between countries and continents. Given some countries have been able to ease restrictions whilst others have tightened, there is a case for this to have filtered through to these forward-looking metrics. Another reason to expect European PMI outperformance vs the US is that the European lockdowns were far longer and deeper than the US, meaning Europe has more room to bounce.

What does Brooks Macdonald think

We will also see another peak week for Q2 earnings which are consistently beating expectations albeit those expectations weren’t revised up when we saw a broad macroeconomic improvement in June, leaving room for positive surprises. Markets will also be watching for US stimulus this week but based on White House comments this weekend it still appears that the two sides are far apart. The pressure for an agreement is building as the $600-per-week unemployment benefit stopped at the end of last week, risking a cliff edge for consumer confidence at a time when US COVID-19 cases remain elevated.

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