Please see below the weekly market commentary from Brooks Macdonald – received 17/08/2020
Weekly Market Commentary | US focus shifts to presidential race as tensions with China ease
17 August 2020
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By Edward Park
- US indices stop just short of all-time highs
- Fiscal stimulus in the US is delayed as Congress’s focus moves to the presidential race
- US/China Phase One talks postponed, easing fears of an imminent escalation
US indices stop just short of all-time highs
US indices have stubbornly stayed below their all-time high as delays to the US stimulus package dampened a more buoyant mood. Last week saw a steepening of bond curves globally which implies expectations of stronger inflation, and therefore higher rates, down the line.
Fiscal stimulus in the US is delayed as Congress’s focus moves to the presidential race
With the Democratic and Republican nominating conventions taking place over the next two weeks, markets will need to push back their hopes for a US fiscal stimulus package. This delay means unemployed Americans now see a significant fall in the federal support they receive as part of the COVID-19 relief measures. Given this is around 10% of the US workforce1, this may have a sizeable impact on consumer confidence and demand. This delay will likely put even greater focus on monetary policy in the short term. This week we have the publication of The Federal Open Market Committee (FOMC) minutes for July, where markets will be looking for any discussion on average inflation targeting by the US Federal Reserve. If inflation was taken as an average (rather than a single target), this would allow the central bank to let the economy inflate in the short term without immediately needing to curb monetary policy. However, if fiscal policy is delayed, the market will start to expect further proactive monetary stimulus from the US in lieu of targeted fiscal measures such as unemployment relief.
US/China Phase One talks postponed, easing fears of an imminent escalation
Investors were expecting a call between US and Chinese officials to discuss the Phase One trade deal this weekend. This did not transpire which has helped reduce fears of an imminent escalation between the two sides. This week however will focus on the US election, with the Democratic convention starting today. The main event will be Joe Biden’s speech on Thursday which is of major importance given his current lead over President Trump. Any specific comments around minimum wages, fiscal stimulus, healthcare reform and taxation will be closely watched.
With earnings season slowing, this week is likely to be predominantly driven by US politics as the presidential race increases in pace and US/China tensions remain in the background. US viral cases continue to slow but European countries have stepped up restrictions as governments seek to curb the spread across the continent.
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