Markets remained volatile during July. Economic data was mixed during the month as was progress in combating COVID. Second quarter GDP figures for all major economies were unsurprisingly weak, showing year-on-year declines that would have been almost unimaginable at the start of the year.
Towards the end of the month an increasing number of COVID cases in many European countries has led to fears that we may be entering a ‘second wave’ of the pandemic. Such concerns may be premature. While it is right that governments continue to act with heightened vigilance, we are in a far better place to deal with any future spikes than was the case earlier in the year. Improved test and trace capabilities, a better understanding of how to manage the disease therapeutically, and the shielding of those at highest risk should all help mitigate any flare-up of the disease. While US case levels remain elevated, there does appear to be some flattening of new cases in some of the most severely affected states. Progress in developing a vaccine continues at a remarkable pace, with positive news released from a number of clinical studies during the month.
The US presidential election is looming larger in investors’ minds. The Donald continues to trail Joe Biden in the polls, with the Democrats increasingly confident of also winning both houses of Congress. A Democrat takeover is normally considered investor unfriendly, with the party typically supporting higher taxes and increased regulation. In this case, however, we think these fears would largely be offset by the view that a Biden presidency is likely to be less erratic than that of the previous four years. Tensions between China and the US remain elevated, as events in Hong Kong drew international condemnation.