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The Cambridge Weekly – 27th July 2020


27th July 2020


General News

PPE = Politics, Pressure and Economics

In this delicate economic and financial environment, the world of politics can have a big impact on capital
markets. Last week, we saw both heads of that political beast, with news stories first buoying and then
bruising market sentiment. Earlier in the week, Europe’s top politicians slogged through marathon
negotiations to reach a historic deal on a €750bn common budget designed to spur recovery from the
deepest recession since World War Two. We cover this in more detail separately below, but suffice to
say that investors took it well, with the Euro gaining on other global currencies.

Then came the bad. Tensions between the US and China escalated further last week, as the Trump
administration closed a Chinese consulate in Houston and US Secretary of State Mike Pompeo called on
western nations to take a firmer line against China. Each day it becomes harder to see a path to deescalation, and the recent flare of tensions brought up the rhetoric of a ‘new cold war’ between the world’s two largest economies. That weighed heavily on stock markets globally, despite a better-than-expected showing in the US corporate earnings season so far.


Going for gold

Gold prices have been on a good run lately. Last Thursday, gold reached an intraday high of $1898 per troy
ounce, within touching distance of its all-time high of $1921 back in 2011.

Physical or safe-haven assets typically benefit from periods of unease or uncertainty. Gold’s credibility
comes partly from its centuries-old use as a store of value, but also from its physical qualities. Its
weightiness, durability, malleability and downright attractiveness make it physically ideal as a coin. It is
decidedly old-school – it doesn’t require a plug and will always be there – even when your internet access


EU recovery package: European, limited but still historic

European Union (EU) leaders never let a crisis ruin a good argument. With the global pandemic forcing
Europe’s economy into its worse slump since the second world war, EU heads of state butted heads during
a tense Brussels summit, for four days and four nights. Their aim was to agree terms on a coordinated
spending package to aid EU recovery. And, in the early hours of Tuesday morning, the deadlock was broken
as they reached a deal on the landmark €750 bn recovery fund. Some may only view it as a formality, but
the EU and national parliaments still have to approve the project.

The size of the fund remains unchanged from the European Commission’s original proposal, with the
remarkable feature that the money will be raised in capital markets, with the EU issuing considerably more
bonds than ever before. This means the supranational European bond market will deepen with this initiative.


Read the full commentary here