Mid week update: 29 July 2020

The week to Tuesday’s close saw equity markets give up recent gains, with the UK falling 2.2%, Europe 3.2% and the US 1.2%. Multi-asset portfolios performed better, with some of those falls offset by Government bonds that showed modest gains and by gold, which remained in the limelight with a gain of 6.1% in US dollars.

We’ve mentioned the gradual increase in the COVID-19 infection rate before and that several US states that came out of lockdown early have reversed their move and re-imposed restrictions.  While these were largely about handling the first wave badly, this week we saw a substantial increase in talk of a ‘Second Wave’ and new measures introduced globally in response to it.  Locally, news that arrivals from Spain must self-quarantine is one of many measures globally, for example Hong Kong’s requirement to wear face masks outside and ban on dining in restaurants. Coming alongside President Trump’s acknowledgement that things are likely to get worse and cancellation of the most important election convention of his campaign it is no surprise to see bond markets strengthen and equity markets decline.

Of course, it is not all about COVID-19 and during the week there has been other news, both good and bad. On a positive note US Senate republicans presented their 1 Trillion dollar plan to bolster the US economy, as a first step towards a compromise with the democrats who previously presented their own 3.5 Trillion dollar stimulus plan.  While size is important what really matters here is that a package is passed and soon, because confidence that any weakness will be met by new stimulus is essential both for business confidence and for investors.  On the downside, continued deterioration in US-China relations saw the US lower the flag at its Chengdu consulate as it prepares for closure.

Returning to investment, the star of the week was gold which gained 6.1%, driven by speculation that rescue packages will inevitably lead to inflation and helped by the suggestion that a bubble could develop.