OCM Commentaries

Market Commentary 2nd July 2020

By July 2, 2020 July 3rd, 2020 No Comments

The Eurozone Outlook Continues to Brighten

Investor optimism from last week’s Eurozone’s flash Purchasing Managers’ Index (PMI) figures was renewed this week as the manufacturing PMI for June was revised slightly upwards to a four-month high of 47.4, from a flash estimate of 46.9. The surprise upwards revisions provide further indication that activity is responding well to the loosening of lockdown restrictions across the continent, though still not quite enough to bring the value above 50 (the level that separates contraction from expansion). The details of the data show output and new orders declined at a softer pace as more businesses restarted operations following weeks of closure due to the coronavirus pandemic, showing significant and sustained improvement.

The improving economic data coming out of Europe over the week were bolstered by the June Economic Sentiment Indicator (ESI), which displayed a similar pattern to the PMI’s – a sharp rebound but still below long-term averages.  The indicator’s sharpest ever monthly rise to 75.7 reflected improving sentiment across all sectors. Sentiment in the services and retail sectors improved following months of decline as demand expectations rose. Sentiment in the industrial sector already registered a strong increase last month, but the improvement continued in June as more factories reopened and supply chains got back up and running. While there is still a long way to go to get back to pre-pandemic levels of activity, the Eurozone appears to be moving in the right direction going into the second half of the year.

More Stimulus in the US

With a resurgence in coronavirus cases across the US causing around half of the country to dial down their re-opening plans, the rebound of the US economy came under threat in recent days, with increasing pressure on the White house and Congress to come to terms on another round of stimulus.  What the next stimulus bill will look like is still up for question. While house Democrats packed a comprehensive list of demands into a $3.5 trillion package in May, Senate Republicans have dismissed that plan and are discussing a package of as much as $1 trillion in total spending. As part of the plans, the popular direct payments to US citizens may be making a return and could be larger than before.  House Democrats in their May bill proposed repeating the $1,200 payments to individuals making less than $75,000 per year, with as much as $6,000 per family. On Wednesday, President Trump endorsed the idea and said that they should be larger than the democrats had proposed. Negotiations are set to begin when the Senate returns from recess on 20th July.

Meanwhile monetary stimulus from the Federal reserve continues to support the US debt markets.  In the past weeks, the central bank began purchasing bonds of individual issuers as part of a broad index of over 800 issuers including AT&T, Walmart and other big names. The policy is part of its emergency lending program set up in response to the pandemic and has the goal of providing liquidity in the corporate debt market, so that issuers are able to access capital despite the economic downturn created by the coronavirus.

For more information on the US economy and our outlook moving forward, please see the attached Market Update document.

UK Brexit Deal in Sight

Negotiations in Brussels restarted in person this week for the first time since March, now with the certainty that the deadline to get a deal won’t be extended. The talks have been in stalemate for the past few months with both sides seemingly unwilling to reach a compromise on key issues, but developments in the past week suggest that progress is being made. In a statement the UK said that negotiations thus far have been comprehensive and useful but have also underlined the differences that remain.

Those divisions include whether Britain should remain bound by European laws after Brexit, how to control the right to fish in British waters, and what role the European Court of Justice should play in policing any agreement. German Chancellor Angela Merkel said she was keen to see a deal stating that they continue to have an interest in a contractual result. The two sides are trying to arrive at trade deal before Britain’s final split with the bloc at the year-end. UK markets and the pound likely to remain volatile as we move into the second half of the year.

Key Events We Are Watching This Week:

  • Friday: China and UK PMI’s
  • Monday: EU Retail Sales, US PMI’s
  • Tuesday UK Labour Productivity

For anyone who wants further data to substantiate the position please review the attached Global Economic Update document and the Economic Dataset below.

Model Portfolios & Indices

Global stock markets continued to show high levels of volatility over the week as the US battles with increasing virus cases. Over the week, major indices as heightened virus fears outweighed optimism over increasing economic activity as economies re-open from their coronavirus induced lockdowns. The portfolios remained robust in the face of risk off sentiment in markets, benefiting from a high level of diversification in asset classes and geographies.

Over the coming weeks, as we are now normally invested, we expect intraweek performance to be more in line with the benchmark once again, and we are optimistic on the medium-term outlook from here, accepting further volatility but confident in our positioning with well diversified portfolios which has been designed to weather these market conditions. Year to date, we have now recovered the bulk of the March coronavirus decline, and we are in a strong position moving forward looking ahead to the second half recovery and strong growth in 2021.



Important Information


Past performance cannot be used as a guide to future performance and the value of your investment will fall as well as rise in value.  You may not get back all of your investment and the final value of your investment will depend on the performance of your portfolio.  The actual performance of an individual client’s portfolio may differ due to different funds being used and being restricted in relation to certain asset allocations.  Performance figures quoted include fund manager charges but exclude adviser, discretionary, custodian and switch charges.  Unless stated, income is reinvested into the portfolio.  The information contained in in this document is for information purposes only.  It does not constitute advice or a recommendation or an offer or solicitation for investment.


This Day in History


On this day in 1964 US President Lyndon B. Johnson signed the Civil Rights Act and Voting Rights Act into law. It contained extensive measures to dismantle segregation and combat racial discrimination across the US.


Have a great week,


Jason & Gina