In July markets made modest gains with the ASX 200 rising by 0.5% and the MSCI world Au. gaining 0.6%

The rising trend in new coronavirus cases globally still shows no let up. This is primarily driven by emerging countries, with developed countries showing some signs of stabilisation over the last few weeks.
Source:, AMP Capital
Unfortunately, Victoria in Australia, is also still struggling to put a lid on new cases, which are showing a continuing uptrend. So far so good in NSW, although the 7-day rolling average case count is trending up and the risk of a break higher is significant.
Sources:, AMP Capital
While terrible, the US and Eurozone June quarter GDP slump was also largely as expected back in late March/early April, so is already factored into our global and Australian GDP forecasts. Furthermore, this is old news, to the extent that the low was probably in April and since then economic activity has started to recover with “reopening”. The bad news is that the recovery will likely be slow after the initial bounce and its threatened by ongoing surges in coronavirus cases. This is evident in a rise in jobless claims in the US over the last two weeks.
The Australian June-half profit reporting season will also get underway, but with only a handful of companies due to report this week including Resmed (Thursday), IAG, News Corp and REA (Friday). It is going to be the worst reporting season in years, with consensus expectations for a ~21% slump in earnings due to the hit from COVID-19, which will be the biggest since the GFC. Financials will likely be the hardest hit, with an expected ~28% slump in earnings led by insurers and the banks, followed by industrials with a ~15% fall in earnings and resources with ~13%. Healthcare may be the only sector to see a rise in earnings (and even that’s iffy).
The negatives for shares remain: rising new coronavirus cases, the pausing or reversal of reopening, very high unemployment, the hit to earnings, the US election, US/China tensions and we are now in a seasonally weak period of the year for shares. These factors however are arguably somewhat offset by a list of positives, including continuing good news on coronavirus treatments and vaccines, the second wave in the US being less deadly than the first, several countries showing that it is possible to contain the virus, China tracing out a ‘Deep V’ recovery, the safe haven US$ is falling (which is normally a positive sign), monetary and fiscal policy remaining ultra-easy, low interest rates and bond yields that make shares look cheap and a lot of cash on the sidelines. We believe Shares are still vulnerable to further volatility, with renewed lockdowns and US/China tensions being the main risks.
Australian home prices are falling and higher unemployment, a stop to immigration and rent holidays will pressure prices lower into next year. Home prices are expected to fall by around 5 to 10% into next year from this year’s highs, with the risk of bigger falls if the renewed rise in coronavirus cases leads to a renewed generalised lockdown. Melbourne is particularly at risk on this front, as its renewed lockdown pushes more businesses and households to the brink. Cash and bank deposits are likely to provide very poor returns, given the ultra-low cash rate of just 0.25%.
Source: AMP Capital.

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