US equities broke fresh records as new Coronavirus cases fell sharply and the overall sanitary situation improved. The contrast was strong with Europe where there was a surge in new cases even if the number of people on life support remained very low. The most probable explanation is that new cases mainly concern young people. At the same time, treatments have improved. This is why high frequency data mobility and economic recovery data have continued to improve and are unlikely to be strongly affected by new social distancing measures.

In the US, indicators show the economy is recovering sharply thanks to manufacturing and property. Nevertheless, consumer confidence fell significantly due to a cut in unemployment benefits and Congress’s failure to agree on a stimulus package.

Against this uncertain backdrop, Jerome Powell, speaking at a virtual Jackson Hole Symposium, unveiled the Fed’s new operating framework. The Phillips curve has been abandoned and the 2% inflation target has become an average inflation goal. This means interest rates will remain at zero for some considerable time. Short term excessive inflation will be targeted to offset current economic softness. All this is positive for US assets, but the Fed was vague on which tools it would actually deploy.

Meanwhile, at the Republican national convention, Donald Trump caused some surprise by trying to cool tensions with China. China has so far only bought $33 billion out of the agreed $142 billion in US goods but Washington said it was satisfied with how the Phase 1 accord was progressing.

Elsewhere, Brexit talks between London and Brexit got bogged down. It is probably too early for a political compromise but we cannot rule out a no-deal agreement. As part of an overall post-Covid stimulus package, London might find it easier to deal with the economic consequences of failure to reach a compromise.

Amid today’s uncertain environment, we continue to be cautious on equities, but we remain overweight European value stocks as we believe they could play catch-up. In fixed income, we are overweight emerging country sovereign debt. Low-interest rates and US dollar weakness are likely to last so the segment is still attractive.


Markets rose over the week on generally reassuring data that suggested the global economy was still rebounding. In Germany, a higher-than-expected IFO business climate reading for August offset recent disappointing PMI indicators. Countries continued to show their determination to support economies for as long as necessary.

The presentation of France’s economic stimulus plan is now scheduled for September 3. Positive trade indications took over from optimism over a future vaccine in fostering risk appetite. Nevertheless, a lot hinges on the sanitary situation improving and the picture in Europe is still uncertain. 21 French departments, for example, are now ranked as red danger zones.

In company news, Bouygues reported better-than-expected half-year results with surprisingly good profitability at Colas and Bouygues Telecom. The catch-up is expected to continue due to a recovery in the second half and rising orders in the contracting arm. WPP’s like-for-like growth exceeded expectations and the group’s flexibility was showcased in lower transmission costs, efforts over cost savings and the decision to pay a dividend again. In contrast, BioMérieux was hit by the FDA’s approval of Abbott’s Covid detection test for symptomatic cases. Note, however, that the French group is positioned on other products used in hospitals and labs.

Elsewhere, AVEVA (software and industrial data services) paid $5 billion for OSIsoft. The bid had the support of AVEVA’s biggest shareholder, Schneider. Carrefour bought 172 Supersol stores in Spain, a move that will help it reinforce its position as the country’s second largest retailer. Accor continued to attract buyers on the back of rumours that it might merge with its rival Intercontinental Group.


Last Thursday, the S&P500 hit an all-time high and its 19th record this year after rising in 5 trading sessions in a row. The last time it achieved such sustained returns was in January 2018 when it rose over 6 consecutive sessions. However, due to massive performance divergence between sectors, big share price moves could now occur without much action on index levels. The S&P500, for example, is now up 7.85% year to date. The tech sector has jumped 33% but banks are still down 18%.

The Dow Jones index will change on August 31 when Exxon Mobile, present since the index was created in 1928, will leave along with Pfizer (healthcare) and Raytheon Technology. They will be replaced by Salesforce (software), Amgen (biotechnology) and Honeywell. Salesforce clocked up one of the best rises of the week, soaring 32% after excellent quarterly figures. Abbott gained 10% on the FDA’s approval of its rapid Covid test. Costing only $5, the kit produces a result in less than 15 minutes. Walmart has joined Microsoft to bid for TikTok. Walmart’s objective is to develop its marketplace activities and on-line advertising. The week also saw Hurricane Laura, likely to be one of the worst storms in 160 years with winds of up to 240km/h. Close to 80% of oil drilling capacity was shut down in the region as well as the equivalent of 3 million barrel per day of refined oil.


Stocks edged higher over the week. However, initial gains were reduced as US-China relations deteriorated further and on profit-taking ahead of the 2020 Jackson Hole Economic Symposium. The TOPIX ended the period 0.74% higher.

The government is optimistic about the second Coronavirus wave and a vaccine, but news that PM Shinzo Abe had health concerns dampened market sentiment. The market appears to be trying to discover cheap economy-sensitive stocks on expectations of a recovery in the “With Corona” or “After Corona” period.

Other Manufacturing, Warehousing, Machinery as well as Air Transportation outperformed. Game producer Nintendo added 4.66% and tractor manufacturer Kubota jumped 7.71%. Recruit Holdings gained 6.05% on indications that sales were recovering on its “Indeed” online recruitment service. In contrast, Real Estate, Pharmaceutical and Food & Beverages were relatively weak. In breweries, Kirin and Asahi underperformed on lacklustre sales.

There are reports that Shinzo Abe has decided to step down due to bad health. Currently, Fumio Kishida (LDP policy research council chairman), Shigeru Ishiba (former secretary general of LDP) and Taro Kono (Defense Minister) are being tipped to succeed to the post. In our view, whoever the successor, there will be no major change to economic policy, especially during a pandemic. The new PM is expected to maintain Shinzo Abe’s focus on the economy.


The MSCI EM index had jumped 2.3% as at Thursday’s close, with China, Korea and India outpacing other regions.

In another development in the US China rift, White House officials reportedly reassured American businesses last weekend that a ban on the We Chat platform would not be as broad as feared. At the same time, Chinese and US officials both reaffirmed their commitment to the Phase 1 trade deal, despite China lagging behind its obligation to buy US goods.

China’s industrial profit growth rose to 19.6% YoY in July from 11.5% in June. The PPI inflation index also improved to minus 2.4% YoY in July from minus 3% in June. On the corporate front, e-commerce operator Meituan Dianping posted strong quarterly results, beating consensus expectations. In the building materials sector, Anhui Conch Cement reported better-than-expected EPS thanks to higher prices and margins. Healthcare operator Aier Eye Hospital had a significant recovery in the second quarter, with a 50% jump in profits on tight cost controls. Management announced that July’s revenues in China rebounded by 47.9% and by 35.8 % overseas. Alibaba filed for the IPO of its fintech arm Ant Group Hong Kong and Shanghai which is expected to raise approximately $30 billion, valuing the company at $200-250 billion.

In Taiwan, Airtac revised upwards its 3Q guidance on solid demand from China electric vehicles and 5G infrastructure. 

Korea’s central bank kept its base rate unchanged despite downgrading the growth outlook to minus 1.3% from minus 0.2% for 2020 and +2.8% for 2021 (vs +3.1%).
In India, IGL posted weak results on lower gas volumes due to the lockdown in Delhi. Alibaba has put on hold plans to invest further in India for at least 6 months due to geopolitical tensions between the country and China.

Brazil had better-than-expected job numbers for July with 131,000 jobs created, vs 18,500 projected. It also posted a current account surplus for the fourth consecutive month, beating expectations. Brazil’s government announced the extension of its emergency support plan until the year-end with the final amount yet to be defined. In company news, Intermedica acquired Grupo Medisanitas Brasil, a private medical insurance scheme with 340,000 members (84% of them corporate clients). This is another positive milestone in Intermedica’s acquisition track record and should be a highly accretive deal with a wide range of potential synergies.



In a good week for risk assets, the Xover tightened by 17bp, the high yield market rose 0.3% and CoCos gained 0.9%.

Technical factors dominated trading due to a becalmed primary market in Europe, a big contrast with the US which had a record August with the investment grade market raising $142 billion. There was, however, some action in corporate hybrids from Vodafone and Total and in subordinated financial debt where Intesa Sanpaolo sold its first AT1 bond after getting the green light to acquire Ubi Banca.

In financials, the ECB approved the transfer of €8 billion in Monte Dei Paschi’s NPLs to the government AMCO entity but under certain conditions: (i) an issue of at least €250 million in subordinated Tier 2 debt, (ii) a law allowing public funds to subscribe to at least 70% of AT1/T2 issues, and (iii) 30% to be subscribed by private investors.

In the high yield sector, which was closed for new issues as usual during August, results poured in, moving underlying bond prices.

Radisson’s results surprised markets and the group announced the buyback of its 2023 bond at its early September call date. Profine beat expectations and its bonds gained more than 3 points. Verisure’s second quarter revenues rose by a reassuring 4.8% and EBITDA was up 16.7% YoY. Elsewhere, Moody’s downgraded Carnival Corp and Carnival PLC from Ba1 to B1. EG Group’s bonds rose when results fell less than expected. Revenues were down 29% YoY and like-for-like EBIDTA came in 16.5% lower. LOXAM posted resilient second quarter figures despite the Covid impact. Sales were €433.3 million (+10.2% YoY) thanks to the integration of Ramirent, but down 23.9% on a comparable basis due to building site closures in May as southern and western European counties introduced measures to counter the epidemic. Teva edged lower after a federal court in Philadelphia accused the group of conspiring with other companies to fix prices. Results at CBRFashion and Edreams fell, but less than expected. Garret Motion surprised markets by announcing that it was looking at various ways to improve its balance sheet and reduce what it considers excessive leverage.


New issuance was focused on North America where $1.34 billion was raised. The biggest deal was from cable and satellite operator Liberty Broadband which raised $575 million at 2.75% due September 2050. The bond is exchangeable into Charter Communications shares. K12Inc (online schooling) raised $360 million at 1.125% due September 2027.

Israel’s Nice Ltd (telephone network monitoring and data security) raised $400 million due September 2027.

Elsewhere, Delivery Hero paid an estimated €360 million for Greece’s InstaShop (online deliveries). The acquisition will help reinforce Delivery Hero’s presence in the Middle East: and North Africa. Note that the group has just joined Germany’s DAX index of the country’s 30 largest companies quoted in Frankfurt. The group saw extraordinarily strong growth in the first half with revenues up by a hefty 93.7% compared to the same period in 2019.