Exposure rates of the Dorval Asset Management Range – 7th August 2020

The world economy continues to open up, despite the fact that Covid-19 is still very much around.

The surge in cases in the United States, particularly in the Sun Belt, has slowed the pace of the recovery, although not as much as some feared, as demonstrated by strong job creation figures in July: the number of jobs the economy added admittedly slowed from June’s figures but outpaced the consensus at 1.4 million vs 1.1 million expected. If the US manages to confirm that it can deal with the jump in new cases without excessively hampering growth, this will be excellent news for Europe, which has had to tackle an upturn in new cases over the past several weeks. It would also be encouraging news ahead of a potential second surge in the epidemic in September.

 

However, the labor market is in no way back to normal, particularly in sectors that are hardest hit by social distancing (cf. chart 1). The construction and manufacturing sectors have also hit a plateau, even though these industries are less sensitive to health issues. The monetary and fiscal authorities have no choice but to pursue their efforts given the necessity of staging a recovery, and in this respect the Democrats and Republicans are in negotiations on a fresh fiscal relief plan. However, discussions are stymied by disagreement on unemployment benefits and federal support to the states, although it looks likely that the parties will come up with a compromise now just three months from the hotly disputed presidential election.

 

 

Job creation in the United States (100=January 2020)

Construction / Manufacturing / Private services / Leisure, hotels, restaurants

 

The approaching election probably accounts for some of the mounting pressure on China from the White House via a series of executive orders that hinder some Chinese companies (Tencent, TikTok, etc.). The atmosphere between the two heavyweights is hardly at its most cordial ahead of the 6-month review of the phase one trade deal in mid-August.

 

In three months’ time, we will have found out (1) how the Northern hemisphere has managed a potential second surge in Covid-19, (2) if at least one of the vaccines currently in phase III trials is effective (cf. chart 2) and (3) who will be President of the United States for the next four years.

 

Development pipeline for Covid-19 vaccines

Source: London School of Hygiene & Tropical Medicine

 

 

Download the weekly letter in PDF version: Exposure rates of the Dorval Asset Management Range – 7th August

 

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