Global equities remain driven by US news flows

  • 19th August 2020

What has happened

After a long wait the US index has finally moved above it’s all time high albeit not too impressively as range bound markets remain the theme. This comes as US Technology sets another high but European equities have lagged with the nascent outperformance in June proving short lived.

Dollar supremacy questioned

In the last month the US dollar has moved off its highs, particularly against the Euro, reflecting a few factors: US COVID cases, stalling over the latest fiscal plans and improving global risk appetite. Yesterday saw the fifth consecutive daily decline for the US dollar reflecting mainly the lack of fiscal progress factor which remains a worry to investors. There was some good news yesterday with House Speaker Nancy Pelosi indicating that the Democrats could support a more contained support bill now with the aim of revealing a more comprehensive package after the Presidential elections. Today also sees the publication of the latest Federal Reserve rate setting meeting. The minutes are expected to discuss the ‘policy review’ which centres around whether the bank targets an average inflation rate or a fixed target. If the central bank moves to an average target this could allow inflation expectations to rise, alongside future interest rate expectations, which would provide a support to the dollar.

Sino-US relations remain a mystery

After constructive news on Monday, Tuesday was more mixed for the US/China outlook with Donald Trump attributing the delay of last weekend’s Phase One review to not wanting ‘to talk to China right now.’ This comes alongside moves by the White House to curb the influence of China on US universities through both encouraging the divestment of Chinese stock holdings within endowments but also warning against Chinese state influence via research and talent recruitment. As the US election approaches it is very unlikely that the Trump administration will step away from the ‘tough on China’ stance but it does look increasingly likely that this will take place through a war of words and muted tit-for-tats rather than a reworking of the trade deal between the two countries

What does Brooks Macdonald think

Global equities remain driven by US news flow in the short term but below the surface, European equity underperformance is leading to quite disparate outcomes. Cracks appear to be appearing between the EU’s Frugal Four and the wider EU so those hoping for increased fiscal spending, if European cases continue to pick up, may be disappointed.

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