Markets remained hesitant, torn between worries over the epidemic, US-China tensions and stock valuations on the one hand, and hopes for a vaccine on the other.

The virus continued to spread in the US, forcing some states to backtrack on lockdown easing. 30 states have seen cases increase over the last 7 days, more than half of them in the same states, namely Florida, California, Texas, Arizona and Georgia. California’s governor ordered restaurants, bars and other enclosed spaces to shut down again.

Elsewhere, China continued to report upbeat trade, industrial production and GDP figures. Retail sales, however, were a disappointment. Singapore’s second quarter GDP contracted more than expected and Japan’s industrial production fell sharply. In the US, meanwhile, indicators continued to point to a rebound in activity. Confidence, industrial production and retail sales data once again surprised on the upside. However, regional Fed chairs Raphael Bostic and Robert Kaplan said they thought any further strength in the recovery could be undermined by the pandemic’s spread and new restrictions. In Europe, economic indicators like Germany’s weekly GDP gauge continued to rebound and France’s Minister for Economic Affairs said consumption had almost returned to normal. The ECB left its rates unchanged but said it was ready to deploy any tools in its arsenal if necessary. As the Covid crisis looks to be under control, Europe can now concentrate on recovery measures. Sadly, leaders are struggling to agree on the proposed €750bn stimulus plan. Hopes for an agreement were low ahead of the July 17 summit. A compromise may be reached over the summer.

In the geopolitical area, tensions resurfaced between China and the US, whether over the South China Sea, Hong Kong, protectionism or the Huawei affair. Donald Trump is on his re-election campaign so we could be in for further disruptions.
Markets are naturally worried about this as well as the ongoing epidemic and stretched stock valuations, but they continue to find some comfort in progress towards a vaccine. Moderna, for example, said preliminary results for its coronavirus vaccine were promising. The US company will start phase III trials on July 27. Russia, too, says it has made progress in developing a vaccine. And AstraZeneca’s partnership with Oxford University also sounded optimistic about its own research.

Against this backdrop, equity markets seesawed but vaccine hopes managed to overshadow other concerns. However, tech stocks wavered as investors started to view them as expensive and over held. Yields on German Bunds more or less trod water but they fell for peripheral European countries and were down 4bp on US 10-year Treasuries.

We have adjusted equity allocations, reducing overall exposure, notably in the US for reasons of valuations more than sanitary concerns. We have maintained exposure to the rest of the world and  our fixed income allocations are also unchanged.


Hopes for new stimulus measures and Moderna’s upbeat results from phase 1 coronavirus vaccine trials helped equity indices flirt with highs hit at the beginning of June. US-China tensions and worries over a second wave in the epidemic were overshadowed.

The European summit in Brussels on July 17 was convened to find a compromise agreement on the proposed €750bn package. Any failure would delay an essential plan. Investors, meanwhile, continued to favor the “glass half-full” approach as earnings generally came in higher than expected, especially for cyclicals.

In line with generally upbeat indicators from German car companies in recent weeks, Daimler’s pre-announcement said that, despite restructuring costs, EBIT would be a loss of  €1.6bn, or less than the €2.07bn expected. Thanks to efficient WCR management -reduced inventories and debt recoveries- industrial FCF came in at €685m, or significantly better than the minus €325m expected.

Ericsson’s figure was even more spectacular: revenues were 1.4% better than consensus expectations and operating profits beat by 43%. Network operating margins were 14.1% vs. 10.9%. The group confirmed that it expected operating margins to come in above 10% for this year and around 12-14% in 2020 (compared to consensus of 10.2% and 13%).

Alstom was similarly optimistic on the recovery and sees a rapid return to growth in the fourth quarter due to key projects in India and South Africa and with AMTRAK. The order book is strong up to 2023. Management also expects the agreement with Bombardier to be finalized during the second half of 2021.

M&A activity is also recovering. Following Alfa Laval’s bid for Finland’s Neles after it spun off Metso’s flow control activities, EDP paid around €2bn including debt for Macquarie’s Viesgo. EDP and Macquarie are to create a long-term join venture, 75.1% held by EDP and 24.9% by Macquarie. EDPR (82.6% held by EDP) will acquire 100% of Viesgo’s renewable business. To fund the acquisition and maintain balance sheet solidity, EDP is to launch a €1bn rights issue.


Unusually for the US, the Dow Jones and S&P 500 ended the period up 4% and 2% while the Nasdaq edged 0.7% lower. The S&P 500 actually turned positive for the year at one point, driven by upbeat data on vaccine trials, rebounding energy prices and a recovery in financials as Goldman Sachs, US Bancorp and PNC Financial reported higher earnings. At the beginning of the week, the Nasdaq posted its worse decline in more than 2 weeks as investors took profits. Tech stocks like Tesla, Apple, Amazon, Facebook, Nvidia Corporation had started the session by hitting new all-time highs but then suddenly retreated.

Overall, markets shrugged off mounting US-China tensions after Donald Trump ended Hong-Kong’s special status and the UK banned Huawei from its 5G program.
The dollar gained ground after retail sales rose 7.5% in June, or better than the 5% expected, and May’s figure was revised up to 18.2%.

Weekly jobless claims came in at 1.3 million.

Moderna said preliminary results for its Covid-19 vaccine were promising. Netflix, however, disappointed investors by saying it expected new subscriber growth to slow in the current quarter. 

US banks kicked off the second quarter earning seasons with a note of caution on the outlook, citing the slow pace of recovery and persistently high unemployment. They also warned on the end of support measures for households. Provisions for the quarter were also slightly higher than expected. The banks with the best earnings were those with an investment bank bias like JP Morgan, Citi Group and Goldman Sachs. Regional banks like Wells Fargo, which rely on other business segments, fared less well.


Japanese stocks rose with the TOPIX and Nikkei 225 up by 2.86% and 2.15% respectively. A strong recovery in the Chinese economy lifted prices of economy sensitive stocks. In its new quarterly perspective report, the BoJ saw the economic recovery continuing in the second half of this year but remained cautious on rising COVID-19 cases. Real Estate, Iron & Steel and Mining outperformed while Pharmaceuticals, Communication Services and Electric Power & Gas underperformed. NISSAN MOTOR soared 18.46% on the release of a new EV model. SUMITOMO REALTY surged 15.62% and NIPPON STEEL jumped 10.07%. The recent trend of value outperformed growth continued.


The MSCI Emerging market index declined 2.2% this week (as at Thursday’s close), underperforming developed markets due to a 5.6% correction in the MSCI China. Volumes on China’s local A share market continued to exceed RMS 1 trillion over 12 consecutive days. SMIC’s mega IPO on the A share STAR board dented short term market sentiment. The securities regulator also named 258 illegal margin lenders to cool down an overheated bull run.

China published better-than-expected 2Q20 GDP growth of 3.2% while June’s new Total Social Financing rose by RMS 3.43 trillion, beating expectations. Retail sales in June fell 1.8% YoY, a sequential improvement on May’s 2.8% decline and the 7.5% fall in April. Macau gaming outperformed this week as Guangdong-Macau quarantine measures were lifted. Restrictions on local travel and cinema businesses also eased as the COVID-19 situation remained under control. Geopolitical tensions resurfaced after the UK decided to ban Huawei-made equipment from its 5G network and a number of CCP members were refused entry to the US.

On the corporate side, Huawei announced first-half sales growth of 13.1% while Mediatek in Taiwan posted a 10% YoY rise in second quarter revenue, beating both company guidance and market estimations. TSMC revised its full-year revenue guidance to above 20% YoY in USD, 5% higher than its previous guidance. This was due to strong demand for performance computing and 5G as the pandemic continues into the second half.

India’s IT service leader Infosys posted an upbeat 1.5% rise in sales in constant currency terms and a 160bp improvement in operating margins. At its AGM, Reliance said Google had invested $4.5bn in Jio Platforms and outlined its ambition for Jio Platforms as a global tech company. RIL’s 5G plans aim to drive the market away from 2G and suggest a shift in strategy from price to service-led differentiation. In Brazil, President Bolsonaro signed the Sanitation Bill into law. The Consumer Goods and Food Products segment outperformed as chicken and pork companies hired between 20,000 and 21,000 workers. Argentina temporarily suspended exports to China from six meat-packing plants after cases of covid-19 were found. E-commerce names underperformed as Paulo Guedes, Economic Affairs minister, mentioned potential taxes on e-commerce transactions. In Mexico, AMLO’s administration is reportedly reviewing toll-road concession contracts. Pensions continued to be a focus as workers who had lost their formal jobs withdrew a record MXN 1.856bn in June 2020 from funds set aside for retirement.



Sentiment was somewhat upbeat thanks mainly to hopes for a Covid-19 vaccine. Nevertheless, worries over the strength of the recovery and US-China tensions persisted. The ECB said it would remain accommodating for as long as necessary. The Xover tightened by 10bp and Main by 2bp between Monday and Thursday.

Atlantia reached an agreement with the Italian government over nationalising Autostrade. Italy’s state bank, the Cassa Depositi e Prestiti (CDP) will buy a majority stake and Atlantia will end up with almost no exposure. Autostrade will also pay €3.4bn in damages for the Genoa bridge disaster. Atlantia and Autostrade bonds rose on the news, gaining 4/5 and 7/8 points respectively.

Cellnex is reportedly considering buying a minority stake in CK Hutchison’s TowerCo. The deal would value the newly established entity at up to €10bn. An agreement would create synergies in Cellnex’s existing markets like Ireland, the UK and Italy while giving it access to others like Austria. SoftBank is looking to make disposals of up to $41bn to help its ailing portfolio. Among options being considered is a sale of part or all of the UK’s Arm Holdings which was acquired 4 years ago; an IPO is also a possibility.

Good news for Barclays which said its CET1 ratio had risen to 14% at end June vs.13.1% at March 31st. Nordic banks kicked off the second quarter earnings season in Europe with most reporting satisfactory figures. Skandinaviska Enskilda Banken continued to provision heavily (SEK 2.69bn or 55bp in cost of risk) while provisioning at Handelsbanken and DNB fell sharply. Capital bases surprised on the upside, partly due to retained earnings.

In new issuance, Gamenet raised €640m in two tranches, one at 6.25% and the other floating. The proceeds will go on refinancing outstanding bonds and funding the Apollo acquisition. Carnival raised $775m at 10.5% and €425m at 10.125%. UniCredit raised €1.25bn with a Senior Non-Preferred issue at 2.2%.


STMicroelectronics signed agreements with France’s BeSpoon and Canada’s Riot Micro to boost its wireless connectivity capacities. Thermo Fischer sweetened its bid on Qiagen from €39 to €43 to reflect strong sales of the target’s molecular biology kits during the Covid crisis. HelloFresh raised guidance on its 2020 sales from 40%/55% to 55/70% and upped its expectations for the EBITDA margin from 8% to 9%. Thanks to its joint venture with Marks & Spencer, Ocado Group saw second quarter revenues rise 27% and losses reduced to £40.6m.

The convertible new issues market slowed ahead of the earnings season. Hong Kong’s (online reservations) raised $500m at 1.5% due July 2027. The company was badly hit by the Covid epidemic. Sales plummeted 50% in the first quarter and are expected to decline by 67-77% in the second quarter. In Europe, Sweden’s Samhallsbyggnadsbolaget issued a mandatory convertible, raising €266m at 7% with a July 2023 maturity.