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July 2020 Review

The first month of the second half of 2020 saw equity markets get off to a positive start.  In contrast to the previous quarter’s surge in broad equity indices after March’s market dislocations, July witnessed a number of bumps in the road.  As happened in June, the appearance of the occasional air pocket took the steam out of risk assets and reminded investors that although volatility has receded, it hasn’t gone away. The year to date picture of the VIX volatility index below, sourced from Yahoo Finance, illustrates the changes in volatility.


After strong performance in tech-related sectors, some investors nervous about second quarter earnings’ announcements, were tempted to rotate into sectors that might benefit from a broader global economic recovery.  However, tech company earnings proved reasonably resilient as did their share prices and July developed into fears about a second wave of Covid-19 across countries where the virus had been controlled, plus no sign of the first wave in the US abating.

President Trump’s fight with China, and it being a key part of his re-election campaign, was not helpful to global equity prices. The US Federal Reserve Bank’s second consecutive monthly appraisal of the challenges facing the US economy and their likely lengthy duration, added to equity market nervousness.  The resulting realism that US interest rates should stay low for a long time further added to the US dollar’s weakness and the connected rally in the gold price.  The following charts sourced from Bloomberg Markets and respectively, show the differing and related price fortunes of gold and the US dollar.



The above chart of the US dollar in July is referenced by the US Federal Reserve’s DXY index, which measures the US currency against six major currencies and is heavily influenced by the euro.

European assets performed relatively well after the EU agreed to borrow 750 billion euros in its own name to help the worst affected European economies.

Our focus on the digital economy equity theme continued to help performance and positive outcomes in July.  Holding gold as part of an increased cash position as some strong equity performers were trimmed, also aided performance.