The dominating themes in July were better jobs, more mobility and higher cases.
Global virus cases continue to climb, notably in emerging economies and the sunbelt states.
The financial Markets largely ignored the bad pandemic news, posting their best returns since May. The S&P 500 Index and S&P/TSX Composite rose over 4 percent.
Corporate earnings season was a source of concern heading into the month but has been a net positive with some strong beats, albeit off low estimates.
Globally, emerging markets have benefited from a weaker U.S. Dollar with the MSCI Emerging Markets index rising over 6% in CAD terms.
European markets were doing alright, until some poor GDP data came in at the end of the month, driving most markets lower.
Market leadership has remained narrow. In Canada, once again it was the golds driving Materials higher and Shopify driving Information Technology. In the U.S. market, the advance was broader based. Leadership shifted from Technology (3.8%) to Consumer Discretionary (8.7%) as well as defensive sectors such as Staples (5.6%) and Utilities (6.5%).
Equity markets have continued to rise. The bond market, that has been very rangebound, seems to have yields moving lower. The economic data bounce that has surprised most participants over the past few months may be starting to slow.
Currency markets were quite active, with a weaker U.S. dollar the dominating theme. This resulted in a stronger loonie, but the Canadian dollar is significantly lagging most other currencies. Chart 2 reveals that the loonie is at the back of the pack compared to G10 peers.
A weaker U.S. dollar is good news for commodities, with gold a primary beneficiary. Beyond currency weakness, plummeting real rates gave a further boost to gold, driving it up over 10% in July, to reach a new all-time high. This is quite an accomplishment after nearly nine years below the high-water mark.
Markets have been generally optimistic, whether it’s a vaccine, or hope for new stimulus, aided by reassurances from the U.S. Federal Reserve that policy remain as dovish as one can get. Fed Chair Jerome Powell reinforced the committee’s extremely accommodative forward guidance during his press conference by asserting once again that the committee “is not even thinking about thinking about raising rates”. He also highlighted that investors should not “look for us to be sending signals about cutting back facilities or anything like that for a very long time.”
Belief in near unlimited policy support has emboldened investors with an amplified sense of confidence. Shaken not stirred is the new mantra to soothe worries about economic contraction, escalating virus concerns, geopolitical risk, as well as a potential political turning point on the horizon.
CHARTS
Source: All charts are sourced to Bloomberg L.P. and Richardson GMP unless otherwise stated.
This article was written by Derek Benedet.
Twitter: @ConnectedWealth
Any opinions expressed herein are solely those of the authors, and do not in any way represent the views or opinions of any other person or entity.
