Weekly Digest - INVESTEC
Click here to read the Weekly Digest 27.07.20
Last week, global equities fell 1.9% in sterling terms (though were little changed in dollars), with elevated concerns over COVID infections in the US and the US ‘fiscal cliff’ after the supplementary unemployment insurance provisions expired on Saturday. Alongside this, China retaliated to the closing of its Houston consulate by closing the US consulate in Chengdu. Gold was particularly strong and moved through the $1,900 mark. It remains the best performing of the major assets over the year, up 30% in sterling.
The EU agreed its new €750 billion euro aid package last week, split approximately 50/50 between grants and loans. The key feature is that it is financed by centrally-issued debt (bonds issued by European Commission). This means it is a new centrally controlled fiscal tool, taking the EU budget from €1.1 trillion to €1.8 trillion over the next seven years. The mechanism of disbursement is not simple and the “frugal five” managed to insert a “Rutte Brake” which enables any EU member to object to any payment, and thereby block it. There is also a question of how monies raised will be repaid – since there are no central tax raising powers. The precise guarantor structure is also uncertain.
Earnings season continues this week, with 190 of the S&P Composite and 169 of the Stoxx 600 due to report. Of particular interest to us are LVMH, Visa, Rio Tinto, Paypal, Facebook, Astrazeneca, Alphabet, Amazon and Apple. The US fiscal package remains in focus, with Treasury Secretary Mnuchin indicating that the administration wants to get something passed quickly. However, there is little time before recess to agree a compromise. Towards the end of the week, we have the release of preliminary Q2 GDP for the US (Thursday) and Europe (Friday).