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By Ciaran Mulhall on 26/07/20 | Overview


 
There are various things to report this week, but first we will hear from Ciaran Mulhall on how he sees important developments with the EU and the Euro this week.

"Following tough negotiations, EU leaders this week reached an agreement on the Recovery Plan, with the final deal maintaining the €750bn envelope, but reducing the volume of grants to €390bn (from the €500bn initial proposal). Despite a somewhat less ambitious final package we see the outcome as an overall positive, for three core reasons,
  • We estimate that, together with the European Central Bank’s sovereign bond purchases, the Recovery Plan will effectively close the Euro area’s funding gap over the 2020-22 period.
  • The total envelope of EUR 750bn—390bn in grants and 360bn in loans—is larger than we expected and will provide the Euro area with more of an area-wide safety net than a smaller envelope would have done.
  • We think that the strong commitment from EU leaders, subject to the European Parliament, as ever, to finalize the agreement earlier than we expected, points to continued EU integration down the road. While a single fiscal policy might still be some way off, this is a step towards that goal.
To finance ‘Next Generation EU’ they decided, for the first time in European history, to enable the Commission to borrow funds on the money markets and use these funds to finance the recovery.

We continue to believe the Euro area is well-placed to recover from the Covid-19 shock. This despite some uptick in positive test results this week in Europe – particularly in France and Spain and indeed in Eastern Europe. 
 

Covid-19 and its effects continue

While the move higher in cases in Europe has gone (so far) unnoticed by market participants, this is in contrast to the growing storm over the Sun Belt outbreak, which has pushed US new virus cases to an average of 66,000 per day, over the last week. Several states have further tightened measures to control the disease. States representing about 80% of the population have now paused or reversed reopening plans, 70% of the US population is now under a face mask mandate of some sort.

While there's strong evidence that such targeted measures are effective, we think it is hard to know if they will be sufficient to bring COVID 19 under control. Should these measures turn out not to be enough to contain the virus, we think some states may need to shut down still more consumer activity.

We discussed at length a couple of weeks ago our preference for European risk assets over United States ones, so we will not go over old ground – save to say the building blocks continue to come together. The test to our thesis will come on any "risk off” move lower – if we are right, we are expecting to see some relative outperformance from European bourses as against US assets. With the move lower late in the week – we have already begun to see this theme play out – particularly as it seems apparent that some profit taking is now due in the Technology sector that has driven the outperformance of the US markets, in recent years.

The sharp move up in the Euro against the dollar, has already taken out the early March 2020 old twelve-month highs as well.”

Ciaran Mulhall
Solus Capital Partners Ltd  
 

Corporate announcement - Monogram Capital Management Ltd

We have two other things to report: we are pleased to say Monogram Capital Management Ltd has entered into an Investment Advisory Agreement with icf management ltd, in connection with the VT icf Absolute Return Portfolio fund.

This reflects the joining together of the fund with the RJMG Global Total Return Fund and with both Monogram and Solus Capital Partners Ltd.
 

New larger fund, with UCITS structure – our GTRF comes home

A larger fund with a standard UCITS structure and widespread availability should allow both original components to thrive and naturally to be more cost effective for investors.

This provides a continuation of our twin approach: the low-cost systemic Monogram model, which continues to perform well, alongside a revived and streamlined actively managed fund. We will report further on this in due course.



On a less happy note, I am sad to report the passing of John Gwilym Hemingway, at the age of 89. He had been influential in the course of both RJMG and before that RMG, and latterly in MCM.

His support and wise counsel will be sadly missed.
 

Finally, we too will take a break here, for such summer as 2020 affords us, and will return suitably refreshed on the 16th August 2020.

We wish all our readers a safe and tranquil fortnight. 
 

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