United Kingdom, Intermediaries

Monthly Market Snapshot: July 2020

A monthly update on equity, fixed income, currency and commodity markets.

Views expressed are those of the authors and are subject to change. Other teams may hold different views and make different investment decisions. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional or institutional investors only.

Equities

Global equities (+4.0%) rose in July, ending the month with a 1.3% year-to-date loss. Markets were supported by additional stimulus measures in the European Union (EU), encouraging COVID-19 vaccine trials, and further evidence of an acceleration in the global economy. However, the recovery was pressured by a rising wave of infections in the US, parts of Europe, and Japan, and in some countries in Asia where containment measures had previously been effective. The EU reached an agreement on a €750 billion Recovery Fund to aid countries in the region that have been most severely impacted by the pandemic. Optimism about potential COVID-19 vaccines remained elevated in July, with several drugs generating encouraging results in clinical trials. US-China tensions continued to mount, as China shuttered the US consulate in Chengdu in retaliation against the US decision to close the Chinese consulate in Houston, Texas.

US equities (+5.6%) rose for the fourth consecutive month, bolstered by promising trials for potential COVID-19 vaccines, the US Federal Reserve’s (Fed’s) pledge of unlimited financial purchases to sustain liquidity, and better-than-expected US corporate earnings. A resurgence in coronavirus infections in many areas of the country forced some states to pause or roll back their reopening efforts, increasing uncertainty about the duration and magnitude of the outbreak and its impact on  the US economic recovery. Democratic and Republican lawmakers continued to negotiate a fifth coronavirus aid package, but both parties remained divided on several key issues, such as the US$600 per week of unemployment benefits, business liability protections, and aid to state and local governments and small businesses.

With 63% of US companies in the S&P 500 Index having reported second- quarter results, 84% of companies had reported a positive earnings surprise, with many exceeding estimates by a much wider margin than usual. The blended earnings decline for the index was -35.7%, year over year, and the forward price-to-earnings ratio stood at 22.0. Growth and momentum extended their…

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