Equity markets creep higher as growing US-China tensions tempers gains

Stocks on both sides of the Atlantic were up with stock bourses in the US, UK, France, Germany, Spain and Italy all in the green. This was despite news that China had sanctioned 11 Americans in retaliation to similar moves by the US on Hong Kong and Chinese officials.

Global investors, however, continue to have faith in the policy responses from governments and central banks around the world in dealing with the economic fallout from Covid-19, even as negotiations over a new fiscal stimulus package in the US has stalled.

President Trump did sign an executive order on Saturday that provides $400 in added unemployment benefits per week and a deferral of payroll taxes for those earning under $100k a year, although this was less than the $600 per week in added unemployment benefits that expired on 31^st July.

House Democrats passed the HEROES (Health and economic recovery omnibus emergency solutions) act in May with the intention of using its $3.4tn budget for a six-month extension to the $600 per week in added unemployment benefits, as well as $175bn in rent and mortgage assistance.

However, Senate Republicans have balked at the demands and pushed for a far lower budget of $1tn, which would have seen reduced added unemployment benefits and a discontinuation of eviction protection. Regardless, with most politicians now spread across the country for the summer recess, the chances of corporation on capitol hill over the near term are slim.

Equities

All major European and American stock indexes were up with the exception of the NASDAQ-100, which declined 0.49%, as Microsoft, Facebook, Netflix and Tesla all declined by at least 2% or more.

The FTSE 100 climbed 0.31% with airlines group, IAG, leading the way with an 8.65% gain. The CAC 40 rose 0.41%, while the Dax 30 increased 0.1%. Rising the most in Europe, however, was the Spanish benchmark, IBEX 35, where a 1.49% gain was driven by Banco Sabadell’s 9.41% leap higher.

10-Year Government Bond Yields

At odds with the rise in equity prices were government bond yields, which declined across the UK and the Eurozone.

10-year Gilt yields declined 1bp to 0.131%, 10-year French government bond yields were down 2bp to -0.235%, 10-year German bunds yields were down 2bp to -0.525%, while 10-year Spanish government bond yields were down 2bp to 0.255%. Italy’s 10-year yield remained the highest of all its closest European neighbours at 0.922%, although it declined 1bp on the day.