Cambridge Weekly 3rd August 2020

Summer sunshine beckons, but politics still casts a long shadow

As July ends with stifling temperatures, thoughts can turn to the month ahead. August capital markets can be either quiet or decidedly choppy. As investors go on their summer holidays, daily trade volumes decline and liquidity drops out of the market – meaning even small buying or selling pressures can have outsized effects. Of course, this year we doubt many traders will be planning an August trip to Spain. But even if they do, overall market liquidity should not be an issue. Thanks to extraordinary interventions from central banks, capital markets are reasonably liquid. And for equities over the last few months, the rising tide has lifted all boats.

US partisan politics could leave states feeling the pinch

In dealing with the economic crisis – just as with the virus itself – policy is crucial. Throughout the worldwide economic shutdown, US authorities have joined their global peers in providing intense and sustained support to a shell-shocked economy. The government’s fiscal aid programs, backed by the extraordinary bond purchasing programme from the Fed, has saved many businesses, and individuals, from going under. Tracking the course of fiscal and monetary policy is therefore an essential part of any outlook on the world’s largest economy. Last week, we got an update on both of those fronts.

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