July’s investment market commentary

While the virus has continued to spread rapidly across the world, financial markets have been boosted by hopes for one or more of the vaccines currently under development, as Andrew Yeadon’s update explains.
Published 7 August
3 mins
Both risk assets and safe havens found strong support in July. A further easing of lock down measures combined with considerable fiscal and monetary easing from governments and central banks worldwide continued to help economies recover from what hopefully will prove to be the worst of the COVID-19 crisis.

In terms of extending financial support programs, Europe took a major step as leaders agreed to the creation of a recovery fund worth EUR750bn. This programme will be financed through a combination of EU debt issuance and new taxes (green & digital). The announcement was received positively by markets as it demonstrated a growing cohesion across the remaining EU countries that has been lacking in the past.


Elsewhere, the Trump Administration ramped up its confrontation with China, ordering the Chinese consulate in Houston to close over claims China was stealing US intellectual property. In retaliation the Chinese ordered the US to close its consulate in Chengdu. This deliberate escalation of tensions is seen by many to be part of Trump’s election strategy as he seeks to appeal to his core “MAGA” support base. With the election now just months away, Biden is well ahead in the polls. If Biden were to win, he is likely to be rather less market friendly than Trump has been, as he will favour greater regulation and higher taxes

While the virus has continued to spread rapidly across the world, financial markets have been boosted by hopes for one or more of the vaccines currently under development. Several vaccines appear to have demonstrated strong immune responses in early-stage human trials. Although it is possible that one of them could be proven by year end, it is unlikely that an effective vaccine will be widely available until well into 2021. For now at least, any economic recovery will be constrained by the continued need for social distancing, and occasional local lockdowns.

Coming into the earnings season, analysts were forecasting a -41.9% decline in earnings for S&P 500 companies (quarter on quarter), which would easily have been the worst since 2009. However, with most companies having now reported, results have surprised to the upside, with 85 percent of companies beating forecasts by an average of around 13 percent.

In local currency terms, most equity markets rose, but a strong pound meant the MSCI AC World Index actually declined -0.5% when measured in sterling terms. Emerging Markets (+2.9%) and Asia ex Japan (+2.5%) were the strongest major markets, while Japan (-7.0%) and the UK (-4.2%) were the weakest. At the sector level, Materials (+2.1%), Consumer Discretionary (+2.2%) and Information Technology (+1.2%) topped performance tables, while Energy (-7.3%) was the weakest. From a style perspective, investors continued to prefer Growth (+1.5%) over Value (-2.6%), while Larger Companies (-0.5%) were a better place to be than Smaller Companies (-1.3%).

Fixed Income saw positive returns across most segments, with sovereign bond yields drifting lower and credit spreads generally tightening. Central bank support continued to encourage investors to return to higher yielding assets, with riskier types of bonds seeing the strongest returns. Over July, the JP Morgan Global Government Bond Index delivered a return of +0.9%, the ICE Merrill Lynch Global Corporate Investment Grade and High Yield Bond Indices gained +2.4% and +3.6% respectively, and the JP Morgan Emerging Market Bond Index rose +3.5% (all hedged to sterling).

The commodity market was boosted by improving demand and a weaker US Dollar, the appreciation of the pound / weakness of the dollar meant that the Bloomberg Commodities Index was actually down -0.1% over the month when viewed from the perspective of a sterling investor. The best performance was seen in Industrial Metals (+7.0%) and safe haven Gold (+8.5%), with Crude Oil (+2.4%) and Agriculture (+2.5%) some way behind.

One of the biggest stories of the month was afore-mentioned slump of the US Dollar. For so long seen as a safe haven, the dollar came under pressure as investors worried about the US economic recovery stalling as localised restrictions get reintroduced in response to the concerning spread of virus cases across many major US states. Over the month the US Dollar fell by -4.6% versus the euro, -5.2% against the pound, and -1.9% versus the yen.

(Notes: All monthly data is quoted in sterling terms unless otherwise stated).

FTSE 1006169.745897.76
DJ Ind Average25812.8826428.32
S&P Comp3100.293271.12
£ Base Rate0.100.10
Brent Crude41.2743.52

This month’s values quoted as at 31/07/2020. The above values are sourced from Bloomberg and are quoted in the relevant currency.

Clients of Nedbank Private Wealth can get in touch with their private bankers directly to understand how their portfolios are responding to market events or call +44 (0)1624 645000 and speak to our client services team.


If you would like to find out more about how we help manage clients’ investments, please also contact us on the number above. Or you can get in touch using the links to the forms towards the end of this page.

Investments can go down, as well as up, to the extent that you might get back less than the total you originally invested. Exchange rates also impact the value of your investments. Past performance is no guide to future returns. Any individual investment or security mentioned here may not be suitable, and is included for information only and is not a recommendation. You should always seek professional advice before making any investment decisions.

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