HISTORIC FIRST HALF
​Short illustration below to remind you how exceptional these last six months have been. We went from economic optimism (“Phase One” US-China trade deal) to geopolitical dynamite (Soleimani assassination) to trade wars (Saudi-Russia oil price war) to the mother-of-all curved balls: COVID. The latter killing half-a-million people (and counting), plunging the world economy into recession and triggering changes in the geopolitical and economic landscape that will last for years to come. With regards to the latter I have written about these in past editions (the rise of “localism”, the danger of the “blame-game” and “resilience over efficiency”).

JULY AND SECOND HALF PREVIEW
Three things will probably dominate. First, today’s start of Germany’s EU presidency with the focus on EU budget (MFF), recovery fund, COVID preparedness, Green Deal, China and Brexit - in that order. 

Second, the US election – with Trump becoming more erratic as his chances vanish; Biden picking his running mate and China/BigTech becoming a bipartisan punchbag. Three, COVID news on the medical and economic front. Expect the US$600-unemployment-add-on (expiry: 31-July) to be extended, but at a lower rate. Looking into Year-End, my main worry is the September/October period, when (1) the US presidential race heats up and China/EU will know about it. (2) Government pandemic-support programs globally start to taper, leading to bankruptcies, downgrades and job losses. (3) The return of colder weather and a potential 2nd wave. (4) The traditional hurricane season – since Climate Change is still happening.

Alternative Markets Update June 2020
Last week, on the highs, saw first significant equity fund inflows since first week of April, as the “cash on the sidelines” gets dragged in. with USD 4 trillion in US money market funds along and underweight equity investors aplenty, there is plenty of reluctant buyers to be dragged in.
Interestingly, the rate of change of the Fed balance sheet has collapsed over the past weeks; with the sheet only increasing by USD 4bn last week. It has been a core view of ours, that President Trump will regard the equity market as his primary scorecard for his presidency. The concept of reclosing the country, or acknowledging the virus and its implications, is being left behind by the US Administration. They will do everything they can to get stocks higher, knowing that IF Trump is voted out in November, the legacy of a record stock market he will be able to show that he left “the greatest economy ever”. So we know that US policy makers have huge firepower at their disposal to drive equity prices higher. ​

The charts below – the first shows the Fed’s balance sheet in blue plotted against the SP500  in red. The top slide shows the absolute size of the sheet, note the correlation with the SP500. The lower slide shows the week on week percentage change in the balance sheet. As can be clearly seen, the rate of change of sheet expansion has collapsed. We should never forget, that getting the US equity market, which will in turn drive all equity prices higher, is now the primary policy of the US Administration.