US share markets continued to rise in July on the back of relatively improved economic data and encouraging corporate results from US companies. But European markets were under pressure due to virus flare-ups and weak economic data throughout the region.
Gold prices rose 10.9% in July – the biggest monthly gain since 2012 – as interest rates dropped across the US and Europe.
Macro data has improved recently and while there are signs of stability across the globe, economic data remains at pre-COVID-19 lows.
While a breakthrough in a Covid-19 vaccine could provide the potential for short-term upside breakouts in some markets we maintain our view that short-term risk remains weighted to the downside. Why this cautious view?
The continued rise in equity markets despite the weak economic reality supports our mild dislike for risk assets.
A persistent backdrop of US-China trade conflicts that may escalate and could put further pressure on markets.
As we try to balance these seemingly contradictory factors, we see the continuing flow of fiscal and monetary stimulus from governments around the world as critical to providing a floor for share markets in the near-term.
Investment outlook in brief
The strong performance of equity markets in recent months, saw us drift closer to our benchmark positions across portfolios. In late July, we rebalanced our portfolios to a mild underweight position to growth assets.
We have also reduced our underweight position on the Australian dollar but maintain it in our portfolio as a protection for a global equity sell-off.