Exposure rates of the Dorval Asset Management Range – 10th July 2020

Upgrades to economic projections continue, but this process still remains hampered by the Covid-19 epidemic. The upsurge in cases in the United States since the start of June is acting as a major stress test for positive scenarios for both the economy and the markets.

The sharp surge in new cases in some states in the US looks worrying from a statistical standpoint, but includes a smaller increase in hospitalizations, while mortality rates remain relatively stable, albeit increasing slightly recently (cf. chart 1). Investors will keep a very close eye on mortality trends and hospital saturation during the summer.


The virus’ reproduction number – or R value – has moved slightly above 1 again, but still remains a far cry from figures seen at the start of March (cf. chart 2), so the more systematic use of masks and partial localized lockdowns may be sufficient to stem the tide. If this turns out to be the case, it would be excellent news for the world economy as it would mean the virus is becoming much less disruptive… but this still remains to be seen.


In practical terms, this outbreak of cases put a stop to the process of reopening the US economy and led to the implementation of precautionary measures in some states. Overall, moves to go back under lockdown remain limited for now (cf. chart 3), although this situation will curb the resumption in consumer spending this summer. However, circumstances in the southern states do increase the likelihood that household financial support will continue and that the stimulus bill will be voted at the end of July.


Other regions are also suffering disruptive clusters of the epidemic – Melbourne and Hong Kong – but Europe and China continue to make progress and open up their economies again. They are enjoying a robust economic recovery, which has every chance of continuing for such times as the virus remains under control. In Europe, national supplementary budget acts and stimulus plans are on the cards this summer, and the meeting on July 17 and 18 should press on with and perhaps finalize the pan-European €750 bn aid package.


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