In this week’s market update: markets tread water as investors watch the economic data and wait for the Presidential election; UK dividends plunge in the second quarter as companies conserve cash; and earnings season gets into full swing.

The V-shaped market recovery in April and May has rolled over into a crab-like sideways movement as investors look nervously at the unfolding economic data and wait hopefully for positive news on a vaccine for Covid-19.

Optimism in the spring has made way for a more realistic assessment of a long, slow recovery from a damaging recession during which we learn to live with and control an endemic disease. The initial fear that triggered the market collapse in February and March has retreated but the bullish belief that it’ll all be over by Christmas now looks too easy.

Investors’ new-found realism is focused on: a challenging second quarter earnings season in which few companies are offering much in the way of forward guidance; a still-accelerating pandemic in many parts of the world, including the globe’s most important economy, and the fear of a second wave in the winter; and a looming Presidential election which promises a less unpredictable but also possibly less market-friendly President in the form of Joe Biden.

Despite increased nervousness, the S&P 500, which had led global markets higher, is now knocking up against the level at which it started the year and the tech-heavy Nasdaq spiked higher on Monday to a new record close as the Trump administration suggested it is lining up another $1trn of support and positive news started to emerge around the development of Covid-19 vaccines. Other markets, less favoured by a big exposure to the high-flying technology sector, like the FTSE 100, remain well down on the year to date.

UK shares have been doubly hampered by their traditional reliance on big dividends to attract investors. It emerged this week that pay-outs slumped by more than 50% in the three months from April to June as companies focused on conserving cash at the expense of paying investors an income from their shares.

Dividends from British companies fell by £22bn to just £16.1bn in the second quarter as companies either couldn’t or wouldn’t maintain their payouts. It was the lowest quarterly dividend payment in a decade and represented a 57% fall from the previous three months.

Three quarters of companies either reduced or cut their dividend completely in the period. That was much worse than the 40% that did so in the wake of the financial crisis. Link Group, which compiled the figures, predicts that, for the year as a whole, dividends will fall by somewhere between 39% and 43%, cutting the total paid out in the form of dividends in 2020 from nearly £100bn last year to between less than £60bn.

The dividend yield, which had made shares a relatively attractive investment in an environment of low interest rates and paltry deposit account and bond income, will emerge at between 3.3% and 3.6%, worth having but less than investors have become used to.

Some companies have had no choice. Banks, for example, were instructed by the regulator not to pay a dividend and many insurance companies followed suit. But other companies have taken the opportunity to reduce their pay-outs voluntarily, thinking that a general downturn in dividend income would provide them with the cover to do something that investors generally dislike intensely.

The outlook for dividends in the UK will be shaped in large part by a still very uncertain economic backdrop as businesses prepare for a tapering down of government support, in particular the end of the furlough scheme in October. Make UK, the body representing UK manufacturing businesses, said that more than half of its members expect to cut jobs as the prospect of a return to normal trading fades. Large employers in areas such as aerospace and automotive manufacturing are bracing themselves for an extended downturn in demand and the outlook for the jobs market is the worst it has been since the devastating early 1980s recession which was mainly focused on heavy industry in the Midlands and North of the UK.

Politicians around the world are battling to decide on the right long-term approach to supporting their economies through the challenges ahead. Over the weekend a summit of EU leaders dragged on until 5.30 on Tuesday morning before agreement was finally achieved on the size of a package to support the bloc’s weaker countries.

A group of so-called ‘frugal’ countries, including Austria, the Netherlands, Denmark and Sweden had resisted big grants to the countries hardest hit by the pandemic. Others, including France and Germany were pushing for a comprehensive deal. The arguments were about money but also other requirements around sticking to the rule of law that were resisted by harder-line governments in countries such as Poland and Hungary.

The creation of an EU recovery fund is a significant step towards pooling of resources in the EU and extends the union’s ability to borrow in the financial markets. As ever getting agreement from such a disparate group of countries was not a simple matter. It was made even more difficult because it came against the backdrop of parallel negotiations over the bloc’s €1trn long-term budget, which was also signed off on Tuesday morning.

In other market stories, Yamana Gold, one of Canada’s largest miners of the precious metal, is looking to float on the London market to take advantage of the recent surge in the price of gold as investors have sought out a safe haven from the pandemic-fuelled market volatility since the spring. Floating the $5.3bn Yamana in London would fill a gap left last year when Randgold Resources was delisted following its acquisition by Barrick Gold.

The price of gold has risen by more than 20% this year to more than $1,800 an ounce, within striking distance of the $1,900 an ounce record set in 2011. Some of the biggest beneficiaries of the rising price have been gold miners, which have fixed costs and so benefit disproportionately from an increase in gold’s selling price. Gold equities have risen by around 33%, much more than the underlying gold price. Yamana is up 41% this year, while Barrick Gold has gained 47%.

On the corporate front, last week’s banking sector appetiser gives way to the main course of a string of company results on both sides of the Atlantic this week. The banks performed well in the second quarter thanks to market volatility helping their trading arms and plenty of fund-raising by companies looking to issue both bonds and shares to bolster balance sheets in the face of the pandemic.

This week’s slate of results includes: Coca Cola, United Airlines, Tesla, Microsoft, AT&T, Intel and Twitter in the US. Over here we can look forward to results from Stagecoach, G4S, Unilever, Centrica and Vodafone.

Economic news is also in focus with the highlight being purchasing managers’ index data across Europe, including the UK, at the end of the week. We will also be able to peruse public finances and retail sales figures here in the UK.

Meanwhile in the other big market-driving story of the second half of 2020, the race for the Presidency is starting to heat up in the key state of Texas. With 38 delegates on offer in the Lone Star State, winning in Texas is key to winning the election.

Traditionally an arch-Republican stronghold, Texas has not been won by the Democrats since 1976 when Jimmy Carter was victorious there. Hillary Clinton came within 9 percentage points four years ago but an increasingly Democrat-leaning suburban population and dissatisfaction with Donald Trump’s handling of the pandemic in a Covid-19 hotspot means that Joe Biden is in with a real shout. Currently it is a dead heat between the two.

Investors are watching the Presidential election unfold with great interest because Biden’s left-leaning policy agenda is seen as less market-friendly, if also more predictable, than Donald Trump’s tax-cutting, de-regulating approach which, until the pandemic, had delivered strong growth and a rising stock market.