Market Analysis July 2020

July saw US equities gaining despite unsettling economic data. The confirmation of Q2's record GDP contraction by 32.9% and unexpected increases in initial jobless claims raised concerns about recovery. Despite this, consumer spending rose 5.6% in June, while inflation remained subdued. The Federal Reserve kept its policy rate unchanged, emphasizing a cautious outlook and the need for further fiscal support. Earnings reports had a strong impact, particularly in consumer discretionary stocks like Amazon and technology stocks like Facebook and Apple. Energy stocks declined, reflecting earlier oil price crashes.

Eurozone equities fell as Q2's severe impact on economic activity became evident. Eurozone GDP contracted by 12.1%, with Spain and Germany hit hardest. Concerns about rising Covid-19 cases and travel restrictions contributed to the decline. However, utilities and consumer staples sectors performed well. The EU recovery fund approval and an improvement in July's composite purchasing managers' survey (PMI) brought some positivity.

UK equities declined due to concerns about a second Covid-19 wave. The government imposed tighter restrictions and advised against non-essential travel to Spain. Despite signs of economic improvement in May and June, the surge in infections raised caution among investors, leading to underperformance in economically sensitive sectors.

Japanese equities initially traded sideways but declined toward the end of the month due to a stronger yen and Covid-19 resurgence. Resilience was seen despite rising infections in Europe and the US. Japanese government initiatives to stimulate consumption were suspended due to renewed risk aversion. Asia ex Japan equities performed well, driven by weaker US dollar, signs of global recovery, and vaccine optimism. Taiwan's index market excelled, while India and China also outperformed. South Korea performed in line with the index, while Thailand, the Philippines, and Hong Kong underperformed.

Government bond yields fell as economies contracted, supported by central bank policies and US-China tensions. The US dollar weakened, benefiting safe havens like gold and silver. Corporate bonds outperformed, especially high yield and investment grade. Emerging market bonds and currencies performed well, supported by the weaker US dollar. Convertible bonds gained alongside global stock markets.

Please remember that past performance isn't indicative of future results, and sectors, securities, regions, and countries mentioned are for illustrative purposes only and not recommendations to buy or sell.