August 2020 Commentary
Policymakers hoped that the Covid-19 pandemic would recede during the hotter summer months, instigating policymakers to gradually lift restrictions at the start of summer season in the northern hemisphere. However, even though record temperatures were registered in August, the virus has unfortunately continued to spread. There have now been over 25 million cases globally, up from 10 million at the start of July.
Even though the number of new daily cases in the US has started to decline, some regions, including Europe, are now facing a second wave where the daily increase in cases is back close to the levels seen at the height of the crisis in March and April. So far, better testing and tracing capacity has allowed European policymakers to treat this second wave with targeted measures, including travel restrictions or the requirement to wear a face mask in public, instead of national lockdowns. This was done in an effort to better balance public health policies with economic policies.
The negotiations relating to a new coronavirus relief bill have continued to stall in Washington. For millions of Americans, the delay in passing another stimulus package could have painful consequences. Thanks to the CARES Act, passed in March, an extra $600 per week of unemployment benefit was provided to workers who qualified for unemployment insurance but this extra financial support expired on 31 July. Since the beginning of August, those who have lost their jobs are back on normal, much less generous, unemployment benefits. Moving forward, without further fiscal stimulus or a vaccine, the jobless are likely to struggle in the face of a potential prolonged period of inactivity due to the pandemic.
From the political arena, the presidential campaign has continued to gather steam with the nomination of Kamala Harris as Joe Biden’s running mate and the official nomination of Donald Trump as the Republican nominee. So far, the most recent polls continue to point to a victory for the Democrats.
From the macroeconomic data front, the U.S. reported a continued improvement in manufacturing, with the PMI expanding to 56.0 from 54.2 in the previous month. Similarly, U.S. Services PMI bounced, with surveys expecting it to increase to 54.8 from 50.0 in the previous month; however, the reported figure was at the expansionary level of 55.0. This gives confidence to the notion that activity has bottomed out, and we are initiating the road towards a resumption of economic activity more in line with previous norms.
The CC Global High income fund advanced 1.4%, lagging its benchmark by circa 200bps comparatively given its underweight position in Energy names, albeit with a much lower level of volatility. US high yield spreads narrowed on a more positive outlook. Going forward the Manager believes that credit markets will continue to be supported by the actions taken by the Fed as well as the uplift from the sequential easing of Covid-19 restrictions. The outlook for the energy sector remains mixed as the US rig count remains at record lows due to persistently low price of crude oil. To this end, the Manager believes that the fund is well positioned to navigate the current volatile environment.
