European markets opened the week marginally down following the emergence of a second wave of the coronavirus in Spain. Health ministry officials announced there were approximately 220 further outbreaks of the virus recorded last week (three or more linked cases classify as an outbreak). While Spain is trying to control the second wave at a more local level, yesterday we saw the Catalonia regional leader, Quim Torra, announce that if the outbreak does not improve over the coming 10 days, he will impose a set of stricter measures across the region. This concern has been echoed across Europe with not only the UK imposing a 14 day quarantine for individuals arriving from Spain (this coming only weeks after the UK included Spain on a list of countries that were safe to travel to), but countries such as Norway and France also putting in place their own measures.
Even though it is inevitably going to be concerning to see the re-emergence of the virus, we have seen multiple second waves already (in Beijing, South Korea, Germany, etc.), and preparation has allowed these countries to react quicker. In addition, many countries have been able to move swiftly to put in place measures that help minimise cross boarder infection. As such, the majority of markets finished Monday in positive territory, and even though European markets closed marginally lower, many have opened today’s session strongly.
Elsewhere the surge in cases in Spain had little impact, with US and the majority of Asian markets posting positive numbers at the close. Yesterday’s release of Chinese industrial profits for June smashed May’s data, coming in at 11.5% (year on year). This pick-up in profits has largely been driven by Chinese policy and in particular targeted government led infrastructure investment. The US was also driven by a wave of positive sentiment following the Republicans presenting a $1trillion support package that would involve a series of bills, that whilst involving the trimming of some employment benefits, would also involve presenting the majority of Americans (earning less than $75,000) with $1,200 and also provide an element of shielding for businesses, including a series of tax breaks and loan facilities.
While Senate Majority Leader, Mitch McConnell, was notably dubious about the Republican’s package, this was the first step in the negotiations that also saw the Democrats propose a $3.5trillion package. The prospect of these support measures somewhat overshadowed reports that US President Donald Trump’s National Security Advisor, Robert O’Brien, had tested positive for the coronavirus. That being said, the recent surge in cases within the US also aided markets on speculation it may pressure the US Federal Reserve to further reinforce its dovish stance when it makes its policy decisions this Wednesday.
The US market was also dealt a further boost when preliminary durable goods orders significantly beat expectations, coming in at 7.3% for the month of June, driven by a spike in demand for motor vehicles (no pun intended) as well as the economies of many states slowly coming back online.
If anything, for investors the past few days have highlighted the importance of a risk based approach to investment and the benefits of a robust investment process. As we have said previously, it is extremely likely that over the coming months we will see pockets of volatility, whether that is driven by the coronavirus, trade, the US elections, Brexit, or something else, but it is extremely important to avoid a ‘knee-jerk’ reaction during these periods. Trying to trade short term noise is always perilous, and with the V-shape recovery (albeit looking increasingly like a ‘Nike Swoosh’), in full swing, the old adage “it’s not about timing the market, but rather time in the market” has never been more true!
Jonathan Wiseman, Fund Manager