Exposure rates of the Dorval Asset Management Range – 26th June 2020

The sharp swell in new Covid-19 cases across several states in the US is beginning to raise concerns, but for now, this casts but very few doubts over the general trend towards a gradual reopening of the economy across the pond.

For such times as this continues, we can expect the recovery in US consumer spending to endure, particularly as household savings rates still remain very high at 23% at the end of May vs. 33% in April, and 8% before the crisis (cf. chart 1). Meanwhile in France, consumers are taking an optimistic stance on their personal financial situation and believe it is a suitable time to make major purchases.


State support has helped pushed up household income, and US households have started to spend

$ bn / Disposable income / Consumption of goods and services
% of disposable income / US household savings rate


According to figures published on Friday June 26, massive state support for US households has pushed their income up by close to 11% between February and April 2020, while their spending plunged more than 18% over the same period. This gap narrowed in May as the economy reopened, but it still remains very wide, pointing to hefty potential for consumer spending to catch up over the months ahead. Exceptional compensation for furloughed staff decided at the start of the crisis only runs until end-July, but it is highly likely that fresh support measures will be decided by then, and the principle of a fresh budget plan to be voted next month now seems to be taken as read.


However, the US economy’s upswing will partly depend on the impact of the virus’ resurgence in certain states i.e. Texas, Florida, Arizona, California, etc. The extent of moves to reintroduce lockdown will largely depend on remaining hospital capacity in each individual state, which is low in Arizona for example, but still high in California. However, any measures will be curbed by hefty political and public resistance to lockdown. In other states, such as New York, the process of reopening is continuing as expected.


These problems are virtually absent from Europe, at least for now, so economic momentum is set to remain strong and positive. Corporate surveys point to a clear upturn in business confidence in the euro area, with the composite PMI coming out at 47.5 in June, vs. 31.9 in May and 13.6 in April. In Germany, the Ifo survey reflected a sharp rise in business expectations in June, thereby wiping out almost the entire nose-dive suffered in March-April (cf. chart 2).  


Business expectations stage clear rebound in Germany


Ifo survey, expectations component


Looking to France, statistical office INSEE’s consumer survey provides some useful insight (cf. chart 3). The French population remains fairly pessimistic on the economy in general – and particularly on unemployment – but citizens are increasingly confident in their personal financial situation and feel that it is a suitable time to make major purchases i.e. a vehicle. The combination of income guarantees, reopening of the economy and stimulus plans (such as car scrapping bonuses) is having the desired effects.


French households still pessimistic on economy, but optimistic on their personal financial situation and spending


View on general future economic situation
View on future personal financial situation
Suitable time to make major purchases


So it is fairly likely that the economic recovery will continue apace, at least in developed countries, bar any major lockdown moves resulting from further outbreaks. We can thus hope that this will ease the much reported impression of a so-called disconnection between the financial markets’ behavior and economic reality, although in our opinion, this is a largely false impression, as we have often discussed. This momentum is fundamentally positive for the most cyclical stocks on the equity markets, although for now it is coming up against fears of a second surge in the epidemic in the fall…which is why investors are paying close attention to the way US states are tackling their new wave of cases.




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