Exposure rates of the Dorval Asset Management Range – 31st July 2020

Second quarter earnings reports confirmed the GAFAM’s triumph, which emerged as the winners in the Covid-19 crisis (cf. chart 1).

These results bear out these companies’ excellent share performances with hindsight. The profitability gap compared to the rest of the market should logically narrow now as the world economic recovery is confirmed, and with the recent drop in the number of new coronavirus cases in the US. However, investors are still holding out for an agreement between Republicans and Democrats on a fresh relief bill for the unemployed and households.


GAFAM triumph in 2Q 2020
Sales growth YoY

Total S&P (est.)


2Q 2020 GDP estimates for the main countries have been published, and as expected, figures are very poor for the obvious reason that the economy was shut down until mid-May. US GDP plummeted 33% (annualized figure), while GDP for the euro area slid 12% (non-annualized, with an annualized plunge of 58%). However, the situation has already picked up considerably, with a very sharp surge in consumer spending in May and June across most countries. In France, household consumer spending on goods had already edged up 1.3% YoY in June, while in Germany, this figure jumped 5.9% the same month. Meanwhile July looks promising with a surprise decrease in unemployment in the country, as the jobless total fell 18,000, vs. a 41,000-increase expected.

However, new clusters of Covid-19 cases could hamper the European recovery somewhat. Meanwhile, in the United States, this will be decreasingly true as the surge in new cases in the southern and western states has started to ease (cf. chart 2). This is a crucial point as it comes as proof that the virus can be managed in a much less disruptive way for the economy. It is increasingly likely that the US economy can resume opening by the end of August, or at least the start of September.


Number of new cases, 7-day moving average
Ten US states: TX, FL, NC, AZ, AR, CA, KY, MS, SC, UT

However, it now remains to be seen whether Democrats and Republicans in Congress can swiftly come to an agreement to prolong the rescue package for households and the unemployed: this support has played a key role in driving a recovery in demand. The parties have seemingly agreed on principle to send a further $300-400bn in stimulus checks to households, but – opposed by Democrats – Republicans want to considerably cut back support for the unemployed, who had received exceptional unemployment benefit of $600 per week up to July 31.


Dollar at its lowest since mid-2018
Dollar exchange rate to main developed countries, weighted for GDP
Base 100 start of 2017

Doubts on the US budget agreement may have played their part in the dollar’s recent speedier fall-off (cf. chart 3). However, this decline was first and foremost fueled by the Fed’s generosity, as it supports the world recovery by safeguarding dollar liquidity. In our view, this policy does not drive a risk of debasement, as claimed by some, but rather it points to the determination to prevent the world recovery stumbling against an excessively rare and expensive dollar, as happened at the start of the coronavirus crisis. This policy to support growth and world finance is particularly buoying emerging countries, although it is restrictive for European and Japanese exporters.




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