Please see below an article written by Edward Park – Brooks Macdonald – received – 06/07/2020
Weekly Market Commentary | Chinese editorial brings optimism despite rising COVID-19 cases in the US
- Equity sentiment remains torn between a highly accommodative backdrop and the rise in US new cases
- While US new cases grow by the day, fatalities remain suppressed providing hope to risk assets
- Chinese state media effectively endorse the strong year-to-date gains in Chinese markets
Equity sentiment remains torn between a highly accommodative backdrop and the rise in US new cases
New cases of COVID-19 in the United States continued to rise over the weekend although, with the Friday holiday, reporting may well be distorted even more than is usually the case at weekends. In terms of the hot spot states, Florida saw a gain of 5.3% and Arizona 3.7% as the growth showed little sign of slowing. The good news remains that fatalities are supressed, with average growth across the US of just 0.2% compared to case growth which increased by 1.7%. This remains key to markets, given the impact of fatalities on the economy versus health trade-off. Markets can be expected to continue to set their tone from this interplay.
While US new cases grow by the day, fatalities remain suppressed providing hope to risk assets
Overnight Chinese indices have seen large gains, as state media stated that a healthy stock bull market was more important than ever post-pandemic. This front-page editorial for the Securities Times suggests that Beijing will continue to act to support the equity market through regulation as well as fiscal and monetary policy. The editorial has supported risk appetite globally, with European indices opening to strong gains and US stock futures implying a solid start to the week. With risk assets currently more finely poised, given what is happening in the US, government and central bank support is of growing importance.
Chinese state media effectively endorse the strong year-to-date gains in Chinese markets
The comment by Chinese state media is viewed as a de facto sanctioning of the market rally in China. This has not always been the case, with the government historically using its powers to try to curb retail-fuelled gains, particularly where there was a concern over leverage. Chinese retail positioning has been gaining traction in recent weeks as the MSCI China edges closer to a 10% year-to-date gain. As the Chinese economy reopens, local investors have been looking past the US new case growth, with the Chinese technology sector being a particular beneficiary of inflows.
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Charlotte Ennis
07/07/2020