Active investment commentary & analysis

US election beginning to enter investors’ consciousness

Equities rose for the third month in a row. Progress in combating COVID remained uneven and the global caseload continued to rise, led by the America’s.  Both China and Germany suffered significant outbreaks but outside of the US the disease generally appears to be in abeyance. The prospect of a sustained second wave continued to overhang asset markets. Liquidity, however, remains abundant. In its latest action to reassure investors, the Federal Reserve announced during the month that it would now directly purchase corporate bonds in the secondary market and not just via an ETF.  

The forthcoming US election is beginning to enter investors’ consciousness. Recent opinion polls have not been kind to Donald.  His approval rating has fell from a high of 47.4% in April to 42.8% currently. An opinion poll in the New York Times placed Biden ahead of the President by 14 points. The release of a book by former White House security advisor, John Bolton, that is highly critical of the President is unlikely to have improved his ratings.

Political developments elsewhere were positive. The trade talks between the UK and the EU appear to be in a much better position than they have been for months. Post a call between Boris Johnson and three of the EU’s presidents, both sides appear to be determined to break the current impasse. We continue to believe that the current talks are not analogous to other bilateral trade deals and that a compromise solution is likely.

Economic data continues to positively surprise relative to expectations but remains heavily distorted by COVID. The question for investors is whether economic momentum slows as pent-up/precautionary demand subsides and the recovery becomes more muted. Critical to the path of economic activity will be the level of new infections in the developed world. The data has been more mixed of late, but we remain cautiously optimistic that a pronounced second wave will be avoided.