US

The latest earnings season in the US is coming to an end. Among the 440 S&P 500 companies that have reported, around 84% of them beat market expectations. Over the past trading 5 days ending Thursday, the Dow and the S&P 500 were in the green for 5 consecutive trading days, gaining 4.08% and 3.17% respectively over the period; the Nasdaq even rose for 7 consecutive trading days and hit a new record high. Although the US Republicans and Democrats are still divided over certain key issues in the new stimulus bill, the overall negotiations still made progress. Together with US ISM manufacturing index improving and beating market expectations, the stock markets rallied. US Fed Vice Chairman Richard Clarida said that the Congress stimulus bills will help the US economy rebound in the second half of the year. It is worth mentioning that the US dollar index stayed weak, hitting a low of 92.52 on Thursday, the lowest level since May 2018; the price of gold continued to rise. At the time of writing, the spot gold price crossed $2,070 per ounce, continuing to set new record highs. The United States will release data on CPI and retail sales next week.

Europe

European equities followed the global markets and went up. The UK, French, and German equity indexes rose between 1.73% and 2.19% over the past 5 trading days ending Thursday. The latest quarterly earnings season in Europe is also coming to an end. Among the 342 STOXX 600 companies that have reported, about 63% beat market estimates, which is slightly lower than the 84% of the S&P 500. In particular, companies such as BMW recorded quarterly losses, while Commerzbank and Allianz also recorded steep falls in net profits. The Bank of England will hold the interest rate meeting next week, the market is looking for be any hints on possible interest rate cuts.

China

China and Hong Kong stock markets lagged behind Western markets. The CSI 300 Index only rose 0.27% over the week, while the Hang Seng Index fell 0.26%. US President Donald Trump signed an executive order prohibiting US companies and individuals from doing business with TikTok's parent company and WeChat. The news triggered market concerns over related sectors, relevant shares also saw sharp drops. China's export data in July improved, rising by 7.2% YoY in dollar terms, while market expected a decline of 0.6%. Next week, China will announce July data on fixed investment, industrial production, retail, and CPI.

US

Although the United States just announced that its 2020 Q2 GDP fell 32.9% QoQ annualised, which was the largest drop on record, several tech giants such as Facebook, Apple, Amazon, and Google’s parent company Alphabet still announced earnings beats, driving the tech sector up. Over the past 5 days ending Thursday, the S&P 500 and the NASDAQ rose 0.33% and 1.21% respectively, while the Dow fell 1.27%. The covid epidemic in the US remains severe, the number of covid deaths in Texas reached a new record high. After the interest rate meeting, Fed Chairman Jerome Powell pointed out that more fiscal policies are needed to stimulate the economy, and the idea of hiking rates is completely off the table. On the other hand, US President Trump tweeted the idea of ​​postponing the November elections, but congressmen from both parties opposed the idea, and he does not have the relevant power to actually postpone the elections. Finally, it is worth mentioning that the US dollar index has fallen and reached its lowest level since May 2018, while the gold price has hit a record high. The US will be releasing the latest employment figures, market expects that the Nonfarm Payrolls in July will fall to 1.635 million.

Europe

European stock markets slightly underperformed. The UK, French, and German equities fell between 3.57% and 5.52% over the past 5 days ending Thursday, lagging behind global markets. As the epidemic continued to ravage across the globe, the European Central Bank required European banks to suspend dividends and stocks buybacks before the end of 2020 in order to maintain financial stability. Germany’s GDP fell by 10.1% in 2020 Q2, while the Eurozone’s GDP fell 12.1% QoQ, both setting new record lows. The Eurozone consumer price index in July rise 0.4% YoY. The Eurozone retail sales data will be announced next week.

China

A-shares performed better this week, with the CSI 300 Index rising 4.2% over the week; Hong Kong stocks were slightly worse, falling 0.45% over the same period. China announced satisfactory industrial profits in June, which rose 11.5% YoY. As for the official manufacturing index in July, it came in at 51.1, which was higher than the previous figure of 50.9; However, the July non-manufacturing index was 54.2, slightly lower than last month’s figure of 54.4. On the other hand, the HKD continued to show strength, and the HKMA intervened in currency market twice on Thursday, selling more than 4.6 billion HKD in total. China will announce its July data on imports and exports, foreign reserves, and Caixin manufacturing PMI next week.

US

Although the global covid epidemic is still severe, positive news from vaccine research progress, together with surprisingly good US corporate earnings pushed US equities upwards. Over the past 5 days ending Thursday, the S&P and the Dow rose 2% and 4% respectively, while the NASDAQ slightly retreated 0.7%. According to US pharmaceutical company Moderna, the clinical results of its covid vaccine showed progress, with all patients producing antibodies after the injection, the news lifted spirits in the investment market. On the other hand, the latest corporate earnings period for US equities have just started. Among the 40 companies that have announced corporate earnings, more than 80% beat market expectations. In particular, more than 90% of reporting banks and financials beat analyst estimates, the overall results were fairly satisfactory. In addition, the US House of Representatives Speaker Nancy Pelosi mentioned that the Congress will likely pass another epidemic relief bill in the next few weeks, further improving market sentiment. The US will announce the Markit Manufacturing PMI next week.

 Europe

European equities performed well over the past 5 days ending Thursday, the UK, French, and German equity indexes all rose more than 3%. The European Central Bank (ECB) kept interest rates and monetary policy unchanged after the interest rate meeting. ECB chair Lagarde said that the recovery speed and scale in the region remained very uncertain, so the ECB might need to fully utilise the Pandemic Emergency Purchase quotas. On the other hand, the European Union will hold a leaders’ summit during 17-18 July and discuss the 750 billion Euro economic recovery plan, Lagarde expects the EU Recovery Fund to be approved. The Eurozone will announce the Markit Manufacturing PMI and Consumer Confidence Index next week.

China

The China and Hong Kong markets saw large fluctuations over the week, the A-share market in particular experienced a sharp correction after an earlier surge, surprising markets. The CSI300 index reached a 5-year high of 4800 points at one point but subsequently fell, the HSI also retreated to the 25,000 level. As the total margin balance in China increased sharply and was close to 1.4 trillion yuan, both the China Securities Regulatory Commission and the China Banking and Insurance Regulatory Commission voiced concerns over off-site funding and indiscriminately increasing leverage, speculation in the market subsequently cooled. As for economic data, China's latest 2020 Q2 GDP beat market expectations, recording a YoY growth of 3.2%, bouncing back from the contraction of 6.8% in Q1. China will announce the LPR interest rate next week.

The epidemic continued to spread across emerging markets, with major EM economies like Brazil, Russia and India claiming the next 3 places for total covid cases after the US, yet local governments still continued to proceed with their original reopening plans. With the second wave outbreak underway, one might be concerned over its economic impact on the recovering economy. As repeatedly mentioned, with the epidemic as an example, emerging markets will continue to face extended external risks, which would serve as the main concern over investing in the region.

Betting on a gradual recovery in the global economy, emerging markets pose as a more attractive alternative with stronger rebound potential, considering the developed markets’ higher valuation. If the market sentiment continues to improve and the epidemic situation does not significantly worsen, we could possibly see EM outperform DM in the short to mid-term. Among emerging markets, we continue to see Asia markets as a better option over Latin America, prioritizing the Vietnam market in particular for its stronger secular growth.

The epidemic situation stayed relatively steady. Even though there are sparse cases in mainly in the metropolitan regions like Tokyo, the government saw limited concerns over another major outbreak, reopening continued and economic activities gradually picked up. However, with the pandemic ongoing on the global scale, key sectors like tourism and retail continued to suffer, May tourist figures even logged a staggering 99.9% drop YoY.

While the investment market should continue to receive support from the Bank of Japan, as outlined by weak leading economic indicators, the real economy is not expected to significantly improve in the short to mid-term. Thus, we will continue to take a neutral view over the market.

With that out of the way, Brexit matters are finally back on the table. Currently, the negotiations are in a deadlock, as both sides have yet to reach consensus on several key issues including fisheries and court matters. With the transition period not extending, corporations are worried that there will be a no-deal Brexit as both the Prime Minister Boris Johnson and the Bank of England suggested.

Economically, Europe is still in limbo. Despite the continued uptrend, global demand remains far from a full recovery, various indicators still show a contracting local economy. Disregarding the limited positive signs, fundamental weakness and Brexit concerns should continue to haunt the investment market, we would not suggest significant investment in the region.

Apart from a few isolated infection groups in Beijing and Anxin County, China has left the epidemic cycle early, far leading other countries who are still struggling to kick start their economies. Leading indicators hinted at an improving economy, all PMIs are in the expansion zone for 2 months in a row, with the Caixin services PMI even rising to a 10-year-high.

However, even as various economic indicators like retail sales and export figures indicate visible bottoming out in the overall economy, these figures remained lower than pre-crisis levels. With the politburo stressing the importance of stability and livelihood guarantees, the overall economy is still expected to significantly slow down for the year. Therefore, choosing the right sector is more important, with the Chinese “new economy” sector expected to grow at a higher pace insulated from market conditions, we would hold the sector to higher regards in the mid to long-term.

The second wave outbreak in the US was geographically widespread, while previous epicentres like New York and New Jersey did not see the local cases skyrocket, states like California, Texas, and Florida saw infection figures jump, raising concerns over possible economy shutdown again in near future. However, recent statements from the White House indicated that the administration do not intent to adopt any plans that might damage the economy.

As the epidemic news are mostly digested and reflected in the market, subsequent negative news did not trigger significant correction in US equities. Instead, markets slowly rallied in anticipation of more fiscal stimulus, as it was widely reported that more are on the way awaiting bipartisan action. With economic indicators like PMIs and confidence board indexes showing visible improvement, we see limited downside in the overall economy. That said, with the valuation levels at such dizzying heights, selection is the key; we expect technology and healthcare sectors to extend their great performance with robust earnings and strong fundamentals.

United States

Recently, both incidents of the intensifying Sino-Indian border conflicts and the rising North-South Korea tensions have garnered much market attention. According to the latest info, after bilateral talks, China has released 10 Indian captives, seemingly implies that Sino-Indian tensions are cooling down. On the other hand, the epidemic situation once again drew market attention. We saw a rapid increase of new covid-19 cases in some US States, while the local Beijing government also identified a serious epidemic situation in the city, market fears grew over the possible second wave outbreak. Nevertheless, we have yet to see the epidemic situation and geopolitical developments bring great impact on the investment market. In the US, the Fed announced earlier that it began purchasing corporate bonds, other sources reported that the White House is drafting a trillion dollar financial stimulus. With the uplifting US retail figures, US stocks put an end to the recent correction, and the NASDAQ rebounded, challenging the 10,000-point level. Over the past 5 days ending Thursday, the Dow and S&P 500 rose about 3.7%, while the NSADAQ gained nearly 4.8%. The US will release data such as manufacturing PMI and core PCE next week.

 Europe

European stock markets followed global markets and rebounded. Over the past 5 days ending Thursday, the UK, French, and German stock indexes rose between 2.4% and 3.0%. After the interest rate meeting, the Bank of England (BoE) kept the interest rate unchanged at the record low of 0.1%, announced a £100 billion increase in the scale of asset purchases, but will slow down the rate of purchase. In the BoE statement, it was reported that the recent data implied that the UK economy had started its recovery since May, so the Q2 GDP contraction may be less severe than the earlier forecast. Leaders of EU member states held a video conference on Friday to discuss the 750 billion euro economic recovery plan, EU budget commissioner expects the plan to receive support from all member states in July. Eurozone will release data such as manufacturing PMI and consumer confidence index next week.

China

Despite the risk of a second wave outbreak in Beijing, Chinese and Hong Kong stock markets still saw gains, the CSI 300 index rose 2.4% over the week, while Hong Kong stocks also rose around 1.4%. As the number of second wave infections in Beijing reached 180, the local government implemented preventive measures, such as school closures and restoring local community control measures, most flights in and out of the city are also cancelled. As for the Sino-US trade relations, after both sides met in Hawaii, American officials said China reiterated its commitment to fulfil the first-stage trade agreement. Next week, China will announce the latest LPR interest rate, market expects a slight drop of 2 basis points to 3.83%.

We continue to expect fixed income to yield positive returns over the year, under the effects of uncapped quantitative easing, bond prices should continue to appreciate amidst the uncertainty in global economy. Since the restart of the QE programme in March, the Fed balance sheet has ballooned from around 4 trillion to over 7 trillion US dollars. This means around 3 trillion US dollars were injected into the market via asset purchases of open market bonds, providing solid support to the general fixed income market.
In light of the economic uncertainty and increasing tensions across the globe, we see two main reasons for investing in the fixed income market, allocating a portion of the investment portfolio in bonds can help improve risk diversification and reduce overall adjusted risk profile, while still providing yield enhancement over holding cash. With the uncertainty in the economy, the low yields in treasuries, and possible inflation pressure in emerging markets, we would opt for quality in general, and short on duration if we seek additional yield. Hence, we like investment grades for risk diversification, and Asian short duration names for yield enhancement.