The World In A Week - The Final Countdown
The weekend saw Boris Johnson announce a four-week national lockdown to try and curb the number of hospital admissions and avoid the NHS becoming overwhelmed. The timing of the national lockdown has been questionable since the UK has been a late mover, with most other major European countries already in a lockdown phase again. All non-essential shops and leisure activities will be forced to close but the decision to keep schools, colleges, and universities open has faced significant backlash, although closure would cause long-term harm for children and students’ education. The Cabinet Office minister, Michael Gove admitted that the national lockdown could be extended beyond its four-week period if the rate of transmission does not fall sufficiently.
Since this is the second national lockdown, we already know what to expect and what is to come, so the transition is expected to be much smoother. The job retention scheme has been extended during this month-long lockdown with employees able to receive 80% of their wage based on their current operating hours, however businesses are still facing rent and rates pressures.
Elsewhere, the US Presidential Election is entering its final stage, as Americans vote tomorrow. According to the latest polls, Democratic candidate, Joe Biden is in the driving seat over the incumbent Donald Trump. Ninety-five million Americans have already voted via post, which equates to 70% of the voting turnout in 2016, hence a much higher voting turnout is expected for this election and polls might not be as accurate. This has been the most expensive presidential election on record, with spending already at $14 billion.
The ongoing Brexit negotiations also enter their terminal phase with the rights to Britain’s fishing waters still in dispute. Chief UK negotiator, David Frost has been reluctant to concede the UK fishing territory since this is a significant source of income for domestic fisheries and the UK are justified to demand full jurisdiction on fishing in British waters despite EU pressures.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 2nd November 2020.
The World In A Week - Wave Motion
Markets had a little bit of a wobble last week, with the MSCI All Country World Index of global equities falling by -1.1% in Sterling terms. The best performing markets were in the Emerging Markets and Japan, which posted small positive gains. This was, however, offset by falls in the US and Continental Europe. Within Fixed Income, High Yield Bonds managed to rally despite the wider risk-off mood, while Global Treasuries and Investment Grade Bonds posted losses.
In the forthcoming US Presidential Election, polls have been pointing towards a “Blue Wave” whereby the Democrats would take both the presidency and both houses of Congress. Markets believe this would result in larger stimulus spending, higher inflation and higher interest rates. This has seen a recent pivot towards parts of the market that have been unloved for quite some time, namely Value stocks, Small Cap stocks and away from US Treasury Bonds. The persistent outperformance of US Large Cap Tech stocks may end following a Biden victory, as the Democrats are likely to call for increased taxation and regulation.
The other wave that markets are currently preoccupied with is, of course, the second wave of the Coronavirus pandemic which is sweeping Europe. France is facing up to 100,000 cases per day, and Italy and Spain announced sweeping additional restrictions on their populations on Sunday, in an attempt to get on top of the virus’s spread. These developments, among many others, affirm our belief that Continental European shares are relatively unattractive versus those in Japan and the Emerging Markets.
In better news, there have been positive developments in both the Oxford/AstraZeneca vaccine trial (which produced a robust immune response in elderly people) and the Pfizer vaccine (which is progressing for emergency approval from the FDA in the US). These developments could have big market impacts, and we feel we are well positioned for such opportunities. When navigating across a sea of choppy waves, investors would do well to look to the far-off horizon for stability… and try not to get seasick.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 26th October 2020.
The World In A Week - Record Breakers
There was a big focus on data for the UK last week, with unemployment and growth numbers being published. The UK unemployment rate for June was reported at 3.9%. This may prove to be artificially low, as UK employment is being supported by the furlough scheme. The coming months will be more insightful for the UK’s unemployment scenario, as the furlough scheme is gradually being phased out.
The UK growth data for the second quarter of 2020 saw GDP drop by -20.4% quarter-on-quarter. This has the dubious honour of breaking the previous record of -2.7% for the first quarter of 1974. It also means the UK is now officially in a recession with two consecutive negative quarters.
All of this was known and actually slightly better than anticipated; the Bank of England had forecast a deterioration of 25%. The main driver of the decline was the Service sector - with Accommodation and Food Services the hardest hit dropping an astonishing -87% quarter-on-quarter. It is little wonder then that the ‘Eat Out to Help Out’ scheme was introduced this month.
Growth is expected to rebound for the third quarter though, but it will be some time before it returns to levels we saw at the end of 2019; the Bank of England’s forecast is not until the end of 2021. Even with a positive outlook for the next three months, there are still considerable risks to the recovery for the UK; a widespread second wave of the virus, consumer sentiment changing to a more cautious approach and the unwinding of the furlough scheme all pose potential threats.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 17th August 2020.
The World In A Week - M&A Is The Way
Mergers and acquisitions activity saw a significant resurgence since the pandemic halted the economy back in March. The ability to complete transactions on a non face-to-face basis has not proved to be an issue with eight global deals of more than $10bn having been wrapped up in the last six weeks. This includes many predatory buyouts of poorer performing entities but has also included diversification-based deals as companies gear up for an imminent economic downturn. Private equity appears to be the predominant source of funding with TowerBrook Capital Partners recently acquiring Azzurri Group who run the Zizzi and Ask high street restaurant chains. The retail sector has taken a huge hit during the pandemic, with chains unable to pay rent as cash flows have been squeezed. The high street is expected to shrink as we move into a new era of consumer behaviour and spending patterns.
Last Friday saw the Trump administration sanction eleven Chinese and Hong Kong officials in a response to China’s new security law. US companies have also been barred from doing business with major technology Chinese companies and this has derailed the planned trade collaboration between the two largest economies in the world. Both parties have declared their political messages with a recommendation for the de-listing of all Chinese stocks from US markets. Trump has also stated that the US will block China’s WeChat, ultimately eliminating the major forms of social media communication between the nations.
The return to normality has been supported by the ‘Eat Out to Help Out’ scheme which offers a subsidy of up to a maximum of £10 per diner to dine in at restaurants every Monday, Tuesday and Wednesday from the 3rd to 31st August. The first week of the scheme has seen a 19% rise in footfall in UK regional cities with the hope that it can kickstart spending again to support the recovery of the hospitality sector.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 10th August 2020.
The World In A Week - Declining Dollar Dominance?
As we write this piece on the first working day of August, we thought we would take the opportunity to reflect on the month of July. Broadly speaking it was a mixed month, High Yield bonds posted very healthy returns of +3.6%, while their high-quality equivalents returned +1.0%. Equities were more mixed in Pound Sterling terms, with the FTSE All Share down -3.6%, while global equities, as measured by MSCI ACWI, were down marginally (-0.9%).
Perhaps the most substantive move of the month was in the currency markets. The US Dollar had its worst monthly performance since September 2010 – falling -4.4% against a basket of the USA’s six largest trading partners over the course of July. The Dollar had acted as a safe haven in the depth of the coronavirus selloff in February and March, and the US Equity market also proved resilient relative to global peers.
A number of factors are now leading investors to question the supremacy of the almighty Dollar as the world’s reserve currency. First has been the US’s very poor showing in how it has handled the spread of the coronavirus crisis as cases continue to rise in many states. Real interest rates in the US have also converged with the rest of the developed world and are now negative. In addition, the USD has a degree of political risk in the upcoming November election. All of these factors have seen other major currencies surge vs the Dollar in July, and we have seen gold rally to an all-time high.
The potential for a substantial weakening in the US Dollar is something we had thought was possible for over a year, as a result, we are well-positioned to benefit via our holdings of Local Currency Emerging Market Debt in the higher-risk portfolios.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 3 August 2020.
The World In A Week - Interim Update
The Federal Reserve concluded its two-day meeting and confirmed, as we fully expected, that the rehabilitation of the US economy will depend largely on the course of the COVID-19 virus. The ongoing health crisis will undoubtedly weigh heavily on economic activity, employment, and inflation during the short term.
Jerome Powell, the Chair of the Federal Reserve, verified that the Central Bank is using its full range of tools to support the economy during this challenging time. He also reiterated their commitment to maintaining the Federal funds’ rates at zero. Basically, the Fed is doing all that it can and the main tool that needs to be used now is fiscal stimulus.
Fiscal stimulus matters because it can directly influence consumers’ incomes, which is why US politicians need to come to an agreement around the emergency unemployment benefit that has just two days left before expiring. There is wide disagreement between Republicans and Democrats on what form the fifth fiscal stimulus package should take. What is clear though is a botched package could seriously dent any economic recovery, while a sensible compromise could boost a hesitant rebound.
One thing they have agreed, is for another round of cheques worth up to $1,200 to all US individuals, with the hope that this will generate a spike in consumer spending. However, consumers facing a significant drop in their unemployment benefits may choose to save the money rather than spend.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 30 July 2020.
The World In A Week – The Pain In Spain
The week started buoyantly with markets in a risk-on mood following positive news about vaccine trials and governments ordering doses of the vaccine in their tens of millions. However, this positive outlook slowly deteriorated throughout the week, as concerns over the US economic recovery became the main anxiety for markets.
With critical unemployment benefits due to expire at the end of the week and rising COVID-19 cases hitting 4 million, the US is looking less like the poster child for tackling the virus crisis. A rare press conference from President Trump admitting that things would get worse before they got better, highlighted this decrease in sentiment. To add to the woes for Donald Trump, we saw US/China tensions increase with retaliatory consulate closings.
Against this backdrop the majority of global equity markets slipped lower, with value outperforming growth for the second consecutive week. Meanwhile, safe haven assets such as US Treasuries and gold, edged higher.
In the UK, we were hit with the sudden exclusion of Spain from the travel corridor exemption list, with France also advising against travelling to parts of the country. Britons who have already travelled for their summer holidays will now be required to self-isolate, with a 14-day quarantine immediately imposed by the Government.
This has seen shares falling for airline and tourism companies, which have already been hit extremely hard during this unprecedented crisis. The uncertainty and confusion will undoubtedly be damaging for businesses and disappointing for those looking forward to a well-deserved break.
The World In A Week - Biden His Time
It looks like it is finally over, as it would appear that the Democrats, with Joe Biden, have taken control of the US Presidency. The control of the Senate, however, is still in question, as it looks as though the Republicans may have retained control. The blue wave that was predicted by the polls may not have come in, but it is clear the US is extremely politically polarised.
What does that mean for markets? We would consider Trump’s strategy of continued court challenges to have little or no effect on stock markets. Immediate concerns though will be the content of the next fiscal stimulus package. With the Democrats controlling Congress and the Republicans controlling the Senate, how diluted will the economic rescue package be? Longer- term concerns will be the rising polarisation and prejudice, which could risk damaging US growth and hamper plans on achieving a sustainable fiscal position. Monetary stimulus was also delayed, with the US Federal Reserve deciding to maintain course against a background of political uncertainty.
In the UK though, monetary stimulus was increased. Against the backdrop of the second national lockdown, the Bank of England’s Monetary Policy Committee met to agree to keep interest rates on hold at the historically low level of 0.1%, and not stray into negative territory. However, it did decide to increase its quantitative easing programme by a further £150 billion, to provide stimulus during this second round of lockdowns. This was joined by the Chancellor, Rishi Sunak, announcing that the government’s furlough scheme would be extended beyond the lockdown period to March 2021.
With the UK facing rising COVID-19 cases initiating a second period of lockdown, and an uncertain Brexit, it was essential that both monetary and fiscal stimulus responses were strong and co-ordinated.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 9th November 2020.