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Macro Update - 10 August 2020

Vaccine to bail out the bulls
August 2020

Another wild week in markets, as President Trump ups the ante in the battle with China – and China gets tough with Hong Kong. As the two sides sit down to discuss progress under the trade deal, the atmosphere will be anything but friendly.


The White House hasn’t been making many friends in Congress either. The much-needed fiscal package is still yet to be agreed, and the President has taken the unusual step of getting a fiscal package by decree. That’ll certainly boost the economy but what’s really needed is a proper deal. Let’s hope they get it done soon.


The US election result could be bad news for markets…

Politicians have their eyes firmly fixed on the elections in November. And Biden is the front runner. There’s a good chance the Democrats will have ‘clean sweep’, regaining control of the Senate as they retain the House. Biden would raise corporate taxes and, by abolishing the cap on social security payments, raise taxes on the rich too. There’d be more regulation and possible the forced break up of Google and Facebook.

However, currently, the news on the US economy remains robust. The employment data on Friday was good and stronger than expected. Economic data surprises are also strong, though they’ve come off their highs a bit. And as the earnings season comes to a close, it’s clear that companies in the S&P 500 have beaten depressed expectations by a record amount. 85% have beaten their earnings estimate. What began as a predicted fall of 44% in earnings per share compared with a year ago, now looks to be more like a 35% drop. Still bad but much better than anticipated. And the outlook has improved too.

Meanwhile, as far as the virus is concerned there’s good news and bad news. The good news is that cases in the US continue to fall. The bad news is that the rate of infection is still too high and will surely start increasing again if reopening is resumed. And there’s bad news in Europe too. Cases have been rising in Spain and France, and now also Germany. In the words of the UK’s Chief Medical Officer, we may have reached the limits of what we can do so far as reopening the economy.


…but a successful vaccine could provide good news

Except that is for one very important issue. Vaccine. It does seem likely that we could get a vaccine soon. The Oxford Jenner Institute vaccine, which is currently being mass produced by Astra Zeneca, has pass its Stage I & 2 trials with flying colours, it’s safe for most people and does produce both antibodies and T cells – double immunity.

The UK has ordered 100 million doses of the Astra Zeneca vaccine, the US 300 million. India has plans to make 1 billion doses in the first half of next year.  We could have a situation where a vaccine is available for every member of the UK and most of the US populations. Assuming a massive take up, life could return to normal. I believe this is the most likely scenario, and it would obviously be bullish for risk assets, with bonds taking a beating.

So, despite rising political tensions between the US and China, the prospect of an anti-business government in the US, and a rebound in virus cases, it appears likely that a vaccine could rescue markets and keep the equity bull trend intact.

Steven Bell

Managing Director, Portfolio Manager & Chief Economist, Multi Asset Solutions


Risk Disclaimer

The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

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