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July 15, 2020
  • Global markets continue to strengthen as optimism for progress on vaccine development grows.
  • Sovereign bond yields, contained by quantitative easing measures, are treading water and credit spreads are unchanged; meanwhile, gold continues to perform well.
  • Private equity is pivoting to the UAE and other Middle Eastern and North African countries as the West largely continues its portfolio triaging.

The market continues to hold up surprisingly well, despite the fundamental challenges exposed by the coronavirus pandemic. The U.S. in particular is a lesson in contrasts. Though tech stocks are keeping the Nasdaq and other indices in the green as 2Q earning season begins, the spikes in cases across several states show that America is far behind Europe and China in containing the virus, which also explains in part the euro’s current 1.14 valuation against the dollar. 

One reason for this optimism is the reports of progress toward a COVID-19 vaccine. There are currently 23 vaccines in human clinical trials; the positive early results released over the last two weeks by Moderna and Pfizer-BioNTech are overriding ongoing concerns about the lack of leadership in the U.S. and the gradual reopening of other economies. A vaccine is still months away from mass production, making it likely that the market will take more twists and turns before closing this chapter of the crisis.

Private equity markets, meanwhile, have their eye on the Middle East and North Africa, particularly the UAE; investments in startups based in the region have increased by 35% in the first half of 2020. The European private equity market declined in the same period as investors focused on portfolio triage during the pandemic’s nadir.

Data on the U.K. economy is dashing hopes for a V-shaped recovery. The sectors posting the strongest recoveries in May (manufacturing and construction at +8.4% and +8.2%, respectively) remain well below January’s levels, weighing down the country’s GDP. With paltry 1.8% month-over-month growth in GDP in May, a clear path back from the 24.5% GDP drop since January has yet to emerge.

Singapore’s Seismic Drop
Cross-border travel restrictions with neighboring Malaysia, in place since the pandemic began, have tanked Singapore’s exports and construction sector, causing the worst economic contraction — a 41.2% drop for 2Q — since the country declared independence in 1965. The Singaporean government’s stimulus package worth 20% of its GDP should spur a rebound in the second half of 2020.

Sharing at the EU Summit 

The EU’s multiannual financial framework is the subject of the first in-person meeting of EU leaders since the pandemic began. The market is looking for the gathering in Brussels to translate into a unified approach for potential aid packages, including the European Recovery Fund, as the European Central Bank plans to grow its balance sheet by €100 billion/month over the next year.

China’s Q2 GDP report is expected to show solid bounce +2.2% YoY (+9% QoQ), after -6.8% in Q1 (110.5% QoQ)

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