Market Commentary

In July, risk appetite was underpinned by further signs of a revival in global growth, the solid start to second quarter earnings season, and the abundance of fiscal and monetary stimulus – which when taken together overshadowed pessimism regarding the latest resurgence in Covid-19 cases. Encouragingly, European Union leaders approved a historic EUR750 billion crisis package in July, while US lawmakers are currently debating another $1 trillion in fiscal support to guide the world’s largest economy back to health. Meanwhile, positive developments on the medical front also emboldened sentiment, with US infectious disease expert Anthony Fauci saying that its “reasonable” to expect a safe and effective vaccine by year-end.


Global equity markets advanced for a fourth straight month in July. The monthly gain helped the S&P 500 to record a small positive return so far in 2020. Second quarter earnings season got off to a healthy start, with over 80% of companies that reported exceeding previously lowered forecasts. Stellar results from the US technology titans boosted the Nasdaq and helped the S&P 500 outperform both the TSX and EAFE in July. However, emerging market equities outperformed their developed market peers as record fiscal and monetary stimulus boosted demand for riskier assets, while the weaker US dollar and a stronger recovery in China also drove developing nation stocks higher. 

Fixed income markets also posted positive results. Yield curves bullflattened as unrelenting appetite for longer-dated bonds drove yields lower. The 10 year treasury yield stumbled as policymakers wrangled over another stimulus package aimed at restoring emergency jobless benefits that expired at month-end, while some high frequency data revealed that the recovery faltered somewhat after several states halted their reopening plans. The Federal Reserve stepped-up and vowed to do whatever it takes to support the recovery, which added to the downside pressure in bond yields throughout the month. Meanwhile, the rebound in crude prices and speculation for a reacceleration in global growth prompted a revival in US inflation expectations, which drove real rates to new lows. 

The greenback slid by the most in a decade in July amid declining treasury rates, record-low real yields, and buoyant risk appetite. The euro advanced to the highest level since May 2018 following the approval of the European Union’s rescue plan, while the pound recouped its COVID-induced losses and posted its biggest monthly gain since 2009. The Japanese yen strengthened as its appeal as a haven grew, while the widespread move out of the US dollar and the latest rally in crude prices boosted the Canadian dollar. 

US dollar softness was a tailwind for the broad commodity spectrum in July. Gold thrived and hit fresh highs as softer dollar conditions and record-low real interest rates underpinned prices, while oil managed to hold above $40/barrel ahead of OPEC+ plans to return some supply to the market. Copper gained after Chinese factory data revealed ongoing momentum in the recovery for the world’s largest consumer of the red metal, while stockpiles saw the biggest monthly drop since 2009 thanks to a revival in demand from both Asia and Europe.