A global tug-of-war match

The world’s biggest ongoing tug-of-war match continued in July, with equity markets and economics pulling in one, bullish direction; and surging Covid-19 virus cases and a run to safe-haven assets pulling in the opposite, bearish direction.

The World in Five Bullet Points

  • The world’s biggest ongoing tug-of-war match continued in July, with equity markets and economics pulling in one, bullish direction; and surging Covid-19 virus cases and a run to safe-haven assets pulling in the opposite, bearish direction. By month end, the bulls appeared to have won with equity markets gaining more ground…but so too did the bears with global Covid-19 cases showing no signs of slowing and safe-haven assets surging, leaving the world no better off on judging ‘what next’.
  • Covid-19 cases continued to rise worldwide with more than 18 million people now affected and nearly 700,000 losing their lives since the outbreak began. Many US states and several Latin American countries added to a resurgence of cases in some European countries, Japan and Hong Kong to send both total infections and deaths higher. But progress was also made on a potential vaccine with as many as 100 vaccine projects ongoing and several projects moving into important Phase III trials. Although most of the potential vaccines are being fast-tracked, experts warned that it was unlikely to become widely available until the end of the year at the very earliest.
  • Global Equity markets kept on running hot in July with the MSCI AC World index adding another 5.3% to be just 1% below where began the year. A series of better-than-expected economic data formed the foundation for the equities rally however a steep rise in Covid-19 cases worldwide also supported demand for the traditional safe-haven assets such as gold, which hit all-time highs (see commodities section) and sent US Treasuries to their lowest ever closing yield (see Fixed Income). However, the US dollar also slipped (see Currencies), giving support to Emerging Market Equities that outperformed Developed Markets (see Equities).
  • The EU announced details of its €750bn Recovery Plan aimed at reconstruction of the region’s Covid-19 stricken economies. A marathon four-day summit was needed to come to a deal and was a scaled back version of an original request from the European Commission and attached to a seven-year €1trn budget. It will allow the EU to borrow at unprecedented levels in the market then either grant or lend countries for national recovery plans.
  • The US inched its way closer to a second fiscal proposal aimed at supporting the US economy and in particular a replacement for the one-off $600 unemployment benefit payments introduced at the height of the economic slowdown but which ran out at the end of July. Meanwhile, tensions between the US and China took another step down when the US ordered the closure of China’s consulate in Houston and China retaliated with ordering the closer of the US’s consulate in Chengdu.
Macro Briefing - MB_MSCI AC World Index with 500 point line
Macro Briefing - MB_Inverted Yield Curve


  • For the second month in a row, Emerging Markets outperformed Developed Markets in July with a pillar of support coming from the decline in the US dollar as Covid-19 cases imperiled the economic recovery there. Nevertheless, the US still added 5.9% but the surge in tech stocks again showed the narrowness of the fourth-month long stock rally there.
  • Europe added 3.9%, with the gains supported by news of the EU’s Recovery Plan but capped by a resurgence in Covid-19 cases and a fresh partial lockdown. Germany led the gainers here with the UK underperforming once again. Elsewhere in Developed Markets, Japan underperformed and fell 1.6% under the weight of a Covid-19 spread in Tokyo, some disappointing economic data, weak earnings recovery, and as the government’s ETF buying programme ended.
  • Emerging Markets comfortably outperformed with the MSCI EM index gaining 9.0% with Latin America gaining the most (+11.0%) despite Covid-19 cases accelerating sharply throughout the region. Asia ex Japan added 8.6% led by Taiwan that surged 16.6%. The EMEA region underperformed adding just 3.3% largely a result of an 8.4% fall in Turkey. Factor wise, the EM Growth index gained 11.4% versus the EM Value index which rose just 5.6%, reflecting the narrowness of the equity rally in EM.
  • The Asia ex Japan index is now up 3.5% for the year with its Asia Pacific cousin up 1.5%, partly reflecting an underperformance in Australia in July after the MSCI index there gained just 4.5% as Covid-19 cases spiked sharply in Victoria and its state economy was again sent into lockdown. Back in Asia, the China H Shares index rose 9.5% helped by a 15% gain early in the month on a single day after Beijing signaled its support for a “healthy bull market”. It later gave up some of the gains as tensions with the US escalated. The A Share index, meanwhile, gained 15.1%.
  • Hong Kong underperformed again and lost 1.6% as a spike in Covid-19 cases prompted lockdown protocols to be re-introduced as well as on news the territory was to lose its special status from the US. Taiwan gains meant it was nearing in on record highs by month end but the narrowness of the gains was even more pronounced here with its largest stock by market cap, TSMC, adding 25% in July alone after rival Intel said it was delaying its next generation of products and would outsource its manufacturing.
  • Elsewhere in the region, Korea gained 7.2% as it too was led by its tech sector but also supported by healthier economic indicators. ASEAN countries generally underperformed with Thailand and the Philippines both losing almost 3% and Singapore also underperforming as its banking sector continued to weigh. India gained 10.5% despite again recording a substantial rise in Covid-19 cases and with strong support from its energy and software sectors.
  • In other Emerging Markets, Brazil gained 14.2% as its currency recovered and commodity prices continued to gain, and Chile gained from the same drivers to add 10.7% despite the market being weighed by progress of a bill allowing Chileans to access their pension funds early. Mexico continued to underperform posting a modest 2.9% gain, all of which was on currency gains. In EMEA, South Africa’s 6% rise was supported by a recovery in mining production as well as commodity prices, and another cut to interest rates. Russia underperformed to add just 3.1% as its currency fell against the dollar with the central bank cutting rates again, and Turkey’s drop was on the back of rising inflation which will hamper the central bank’s ability to lower rates.
Macro Briefing - MB_MSCI_Regional Equity Returns_USD_MQY
Macro Briefing - MB_MSCI_Asia Equity Returns_USD_MQY

Fixed Income

  • Global government bond yields ground lower in July. Despite the continued risk rally, the resurgence of Covid-19 infection rates amplified growth concerns, while the accommodative monetary policy bias of major central banks exerted downward pressure on yields.
  • The tug-of-war between hope and pessimism played out in several bond markets, including the US Treasury (UST) market. At the start of the month, UST yields initially rose in tandem with the equities rally as well as stronger economic data. But rising infection rates, which forced some states to roll back their plans to re-open their economies, doused recovery hopes.
  • Further, tensions between the US and China ratcheted higher during the month, providing support for safe-haven bids. Overall, the 10-year UST yield fell by 11 bps to a low of 0.55%. Yield declines at the short end of the curve s were more muted, leading to a bull flattening of the curve. In eurozone, government bond yields similarly fell with their performance supported by €750bn Recovery Plan and the ECB’s expanded bond-buying program.
  • In Asia, most domestic bond markets saw positive performances as government bond yields in the region fell broadly. External uncertainties continued to support expectation of a low interest rate environment. Further policy rate cuts in Malaysia and Indonesia in July also pointed to the accommodative monetary policy backdrop in the region, while contributing to the outperformance of the two domestic bond markets during the month. However, the Chinese onshore and Thai domestic bond markets underperformed with moderately negative or flattish performance over the month.
  • At the same time, Asia and broader Emerging Market (EM) USD credits benefited from the resilient risk sentiment which drove further spread tightening across sectors. This marked the credit markets’ fourth consecutive month of gains as the hunt for yield remained strong.
  • The gains in Asian credit market were led by sovereign bonds as lower US interest rates boosted performance of long-dated investment grade sovereigns, while selected high yield sovereigns such as Sri Lanka also fared well on positive idiosyncratic developments.
  • In the broader Emerging Market region, Latin America sovereign bond markets performed strongly, while Emerging Europe lagged, weighed down by the performance of Turkey sovereigns amid concerns over inflation and renewed currency volatility.
Macro Briefing - MB_Bond Returns_USD_MQY
Macro Briefing - MB_Key Bond Yields_CC


  • The US Federal Reserve left its funds rate target range unchanged at 0-0.25% and made it clear it will keep it there for some time, adding signs of a coronavirus resurgence are "starting to weigh" on economic activity.
  • US economic data continued to show a largely positive picture. Consumer spending rose to 94.5% of the pre-virus level although the level of recovery in parts of the economy is still very low with transport still at 25% of its pre-virus level. New Orders in durable goods and capital goods increased by more than expected. New Home sales and Existing Home sales both also increased by more than expected (+13.8 and 20.7% respectively) and Housing Starts also rebounded. The Empire Manufacturing Index rebounded by a further 17.2 points in June and is now in back in expansion territory. Retail Sales data for June increased by 5.6%, well above expectations, while Industrial Production in June rose by 5.4%, again by more than expected. On the downside, Consumer confidence fell by nearly 6% in July to 92.6 while Initial Jobless Claims in the second week of July increased for the first time since spiking aggressively in March - the largest increase was in New York state.
  • The ECB kept rates on hold and announced no new shift in monetary stance although the fiscal Recovery Fund was significant (see page one) and it did confirm an expanded QE programme. Eurozone manufacturing PMI recovered to 51.1 and services PMI to 55.1, both higher than expected and reflecting expansion. Retail Sales jumped 17.8% mom. GDP figures for Q1 in eurozone fell 3.6% qoq, with Germany falling 2.2% while France, Spain and Italy fell around 5% each.
  • China Q2 GDP rose 11.5% qoq (3.2% yoy), much higher than expected with the ytd figure showing a decline of 1.6% versus expectations of a 2.4% decline. The industrial section of the data showed a distinct outperformance versus the retail sales side, while June Retail sales fell 1.8% against expectations of a 0.5% increase. Korea’s Q2 GDP fell 2.2% qoq, led by a 16% drop in exports, signalling a formal dip into recession.
  • The IMF approved US$4.3bn of funding for South Africa to support the government’s fight against Covid-19 and general economic support, while the SA central bank cut rates by another 25bps to 3.5% - its lowest ever rate. South Africa joined Russia, Malaysia, Indonesia, Hungary and Colombia in a list of EM central banks that cut rates in July. Mexico’s Q1 GDP fell 1.2% qoq, continuing a negative trend seen in the previous three quarters while its May Industrial Production output fell 1.8% mom following April’s 25% fall. Brazil saw a recovery in May’s Retail Sales data, which improved almost 14% mom albeit after a 16% fall in April.
Macro Briefing - MB_Central Bank IR_CC
Macro Briefing - MB_PMIs


  • Oil continued its recovery but only added a couple of percentage points in July as the recovery in oil consumption in emerging markets remained sluggish, as well as on concerns the recovery in developed markets may be slowed by fresh lockdowns on a resurgence of Covid-19 cases. Brent added 4.7% and WTI 2.5%. A slide in the dollar also supported prices while OPEC and Russia maintained their production cuts.
  • Gold rose more than 10% to hit a fresh all-time high by the month end as fears from the economic fallout from accelerating Covid-19 cases and a falling US dollar increased demand for the regular safe-haven asset of choice. The gold price has now risen 30% in 2020 and is within a hair’s-breadth of $2,000 per ounce with the massive stimulus programmes around the world adding support as investors also fear the return of inflation. Silver recorded its best monthly performance since 1979, jumping 34%.
  • The S&P Industrial Metals index rose 6.9% as base metals prices rose again on better-than-expected industrial production data around the world. Iron ore also continued to gain adding with steel production in China steadily increasing, reflecting a strengthened PMI index there. Aluminium gained almost 6% and although copper prices rose over the month, much of the gain was in the first week with the rest of the month dominated by Covid-19/economic downturn fears and a lower dollar.
Macro Briefing - MB_Commodities Performance_USD_CC
Macro Briefing - MB_Currencies Performance_USD_MQY


  • The US dollar index (DXY) depreciated by over 4% in July, its largest monthly decline in nearly a decade. Crowded positioning, declining real rates, and continued momentum in risk-on sentiment as economic data continued to surprise to the upside likely drove the trend.
  • All G10 currencies appreciated against the USD with the Swedish Krona and Norwegian Krone strengthening the most by ~6%. The British Pound rallied back to March highs, while the Euro rallied to its highest level in two years driven by the optimism around a potential fiscal union.
  • Emerging market currencies underperformed G10 in July but nevertheless rallied against the USD. Within major EMs, Latin America FX outperformed Asian FX, led by Chilean Peso and Brazilian Real that appreciated 8.4% and 4.7% against the US Dollar respectively.
  • Russian Ruble continued to remain under pressure depreciating by 4.3% in the month. Low beta currencies, such as Japanese Yen and Singapore Dollar were the best performers within Asian FX, while Indonesian Rupiah struggled to hold below 14500. The Chinese Renminbi appreciated modestly taking USD/CNY back below 7.0.
Macro Briefing - MB_MSCI AC World 12m Forward PE_CC
Macro Briefing - MB_MSCI US 12m Forward PE_CC

Macro Briefing - MB_MSCI EU 12m Forward PE_CC
Macro Briefing - MB_MSCI Japan 12m Forward PE_CC
Macro Briefing - MB_MSCI EM 12m Forward PE_CC
Macro Briefing - MB_MSCI APXJ 12m Forward PE_CC

1 Eastspring Investments. Chart data from Refinitiv Datastream as of as of 31 July 2020.
2 Eastspring Investments. Chart data from Refinitiv Datastream as of 31 July 2020. For representative indices and acronym details please refer to notes in the appendix. Quoted returns are MSCI, US dollar denominated total returns.
3 Eastspring Investments. Chart data from Refinitiv Datastream as of as of 31 July 2020. For representative indices and acronym details please refer to notes in the appendix. For representative indices and acronym details please refer to notes in the appendix.
4 Eastspring Investments, Refinitiv Datastream as of 31 July 2020.
5 Eastspring Investments. Chart data from Refinitiv Datastream as of 31 July 2020. Commodities Currencies
6 Eastspring Investments. Chart data using IBES estimates from Refinitiv Datastream as of 31 July 2020.
7 Eastspring Investments. Chart data from Refinitiv Datastream as of 31 July 2020. Data and commentary prepared by Peter Bennett.