lady with camera

Market Snapshot

An overview of what has been happening across global markets.

A monthly snapshot of the current economic climate that could impact your financial affairs

There really is less than 100 days ‘til Christmas!

October 2020

With less than 100 days ‘til Christmas, yes really, it is worthwhile reflecting on what has happened in a busy 2020.  At the start of the year, stock markets continued their inexorable rise against a backdrop of US-China trade negotiations, Brexit, and challenged global growth. Then, as we moved through February and into March, the impact of the Coronavirus took hold, dominating the personal and economic landscape thereafter and affecting almost every sector of the economy. With a dramatic monetary and political response it did not take long for markets to shrug off the worst of those concerns, with the leader of that momentum the US S&P 500 which reached record highs at the end of August – the second fastest post-sell-off rally recorded since 1950. This narrative, however, betrays the fact that the recovery has been uneven, in what has been dubbed the K shape period.

On the downside, economically sensitive areas of the market such as energy and aviation were left reeling by plummeting demand and an uncertain economic outlook; this was most vividly seen through rights issues at British Airways owner IAG and more recently Rolls Royce. During the initial crisis in Spring, Shell announced it would cut its dividend for the first time since the 1940’s and has recently announced 9,000 job cuts and a renewed focus on the transition to green energy. Added to this, as has been widely reported, the retail sector has seen an accelerated change.

What sectors have performed well?

Such travails have been masked by the stellar gains in the technology sector, with these high growth stocks benefitting from secular tailwinds including the accelerated adoption of tech solutions at home and the workplace to help navigate lockdown restrictions. The seemingly inexorable rise of big tech has, however, lost momentum through September with investors wrestling with valuations and the uncertainty brought about by the looming US Election and a resurgence in virus cases. Tesla has seen its share price appreciate by 10x in the past year but underwhelming announcements at Elon Musk’s “battery day” event dampened investor expectations though it remains the world’s largest car company by market capitalisation having toppled Toyota earlier in the year.

What is happening in the UK?

The Bank of England kept interest rates at 0.1% and whist discussions of negative interest rates have been rebuffed for now the subject remains a point of debate. The Job Retention Scheme, due at the end of this month, will be replaced by a new scheme which will shift some of the burden onto employers. Unemployment figures, once the more comprehensive furlough scheme is withdrawn, will give a firmer indication of the health of the consumer and the trajectory for the UK economy but with daily case rates above even the highs of the initial wave, and Brexit negotiations stalling, the path towards economic recovery is more clouded than you would hope for at this point.

What is happening Internationally?

As the presidential debates get under way in the US and with the election fast approaching, widespread social unrest and criticism of the President’s handling of the pandemic have seen Trump’s Democratic rival, Joe Biden, take a commanding lead in the polls. Meanwhile, tensions with China have increased, though the ‘Phase 1’ trade deal signed in January remains intact. This despite Chinese imports of US goods – a key part of the deal - falling short of expectations. Fears that a second wave in winter could derail progress have seen the US Federal Reserve strike an increasingly dovish tone, signalling interest rates are likely to remain in their current 0-0.25% range even in the event of temporary inflationary pressures. This more flexible approach to inflation management represents a marked departure from decades-long monetary policy and caused the yield-curve to steepen with longer dated Treasuries selling off to account for potentially higher inflation eroding real returns over time.

In Japan, Shinzo Abe was replaced by Yoshihide Suga as Prime Minister and although the world’s third largest economy continues to struggle with deflationary pressures and a worse than expected contraction in GDP, the initial stockmarket reaction to this change has been positive. The broader macro-economic trend of deglobalisation also looks set to negatively impact the Japanese economy which is heavily reliant on exports. In Europe, meanwhile, the passing of the EU support package following weeks of fraught discussions between the Coronavirus-stricken southern nations and the so-called “Frugal Four” added ballast to the bloc’s recovery, supporting the typically more economically sensitive European stockmarkets, already buoyed by dovish central bank policy

With global cases continuing to rise, the fate of the global economy remains inextricably linked to the path of and response to COVID-19. History has shown it is better to ride out near-term volatility and wait for markets to recover, aptly demonstrated by the equity market recovery we have seen since the lows in March, with the Nasdaq 100  reaching record highs and global economic data moving in the right direction. However, we are under no illusion that this will be a straightforward upward path, and indications of further restrictions or lockdowns are concerning. In the meantime, it is important to remember that if a vaccine is developed, the delayed economic activity can give markets a significant boost further down the line, as it will lead to a surge in activity in forthcoming quarters, as economies recover.

A lot has happened already in 2020 we wait with anticipation to see how the remainder of this unprecedented year unfolds.

Previous months

September 2020: Changing consumer habits forces retailers to reduce their high street presence and move trade online 

Amazingly it’s the third quarter already and it is worthwhile reflecting on what has happened in a busy 2020. At the start of the year, stock markets continued their inexorable rise against a backdrop of US-China trade negotiations, Brexit, and challenged global growth. Then, as we moved through February and into March, the impact of COVID-19 took hold, dominating the economic landscape thereafter and affecting almost every sector of the economy. It did not take long for markets to shrug off concerns, however, with the US S&P 500 coming full circle, reaching record highs at the end of August – the second fastest post-sell-off rally recorded since 1950.

What sectors have performed well?

The recovery has largely been driven by the technology giants with Apple’s valuation topping $2 trillion (doubling in just two years) and Microsoft benefitting from increased demand for its software as the working from home revolution gathered pace. While growth has dragged the market higher, there have been high profile casualties such as energy as demand for oil fell off a cliff due simply to a lack of activity across the spectrum, from industrial manufacturing to commuting. Exxon Mobil, the largest company in the world as recently as 2013, has now been kicked out of the (representative, rather than size weighted) Dow Jones Industrial Average Index – a telling sign of the changing economic landscape in the US.

There have been diverging fortunes within sectors too, with traditional retailers left reeling from lockdowns as online competitors took market share and supermarkets surged. The latest update from M&S acknowledged the need to accelerate plans to reduce their high street presence and move trade online to account for changing consumer behaviour with 7,000 jobs to go. Within the beleaguered aerospace sector, Rolls-Royce has taken steps to shore up its balance sheet, consolidating operations and cutting 9,000 jobs as grounded planes slashed engine servicing revenues. 

What is happening in the UK?

The bounce-back in fortunes for the wider market has been underpinned by unprecedented government and central bank support across the globe. Both have stepped in with quite extraordinary coordinated fiscal and monetary stimulus to date and it is likely more will be required to sustain the recovery going forward. The Bank of England kept interest rates at 0.1% and discussions of negative interest rates at this stage remain just that. The UK Government meanwhile embarked on an unprecedented programme of fiscal stimulus, including the Job Retention Scheme, which currently supports the wages of 9.6 million workers. This is due to be unwound in October and, as the UK economy is weaned off life-support, investors will be looking to economic data for signs of life.

Though retail activity returned to pre-COVID levels in July, economists have warned this recovery could be short-lived with the spike in sales driven by pent up demand as lockdowns eased. Unemployment figures, once government support is withdrawn, will give a firmer indication of the health of the consumer and the trajectory for the UK economy.

Despite the subdued outlook, further muddied by stagnating Brexit trade negotiations, the pound - usually a barometer for the health of the UK economy - has held up remarkably well against the dollar. However, the Sterling recovery has coincided with more general greenback weakness as risk aversion (which tends to lead the $ higher) subsided. The dollar index has fallen 10% since 20 March and, with interest rates at record lows and twin deficits exacerbated by increased fiscal measures to prop up the US economy, dollar weakness looks set continue in the near term. Against the Euro, Sterling has been more range bound.

What is happening internationally?

As the presidential election swings into focus, and with Trump firmly lagging Democratic rival Joe Biden in the polls, tensions with China have increased, though the ‘Phase 1’ trade deal signed in January remains intact. This despite Chinese imports of US goods falling short of expectations with President Trump perhaps looking to keep his flagship international trade policy on track ahead of the November poll.

Away from the geopolitical fractions, COVID-19 cases in the US are approaching 6 million but daily rates are once again trending downwards after a spike in southern states threatened the economic recovery. Fears that a second wave in winter could derail progress have seen the US Federal Reserve strike an increasingly dovish tone, signalling interest rates are likely to remain in their current 0-0.25% range even in the event of temporary inflationary pressures. This more flexible approach to inflation management represents a market departure from decades-long monetary policy and caused the yield-curve to steepen with longer dated Treasuries selling off to account for potentially higher inflation eroding real returns over time.

In Japan, Prime Minister Shinzo Abe confirmed he will step down due to ill health, increasing uncertainty at a time when the world’s third largest economy continues to struggle with deflationary pressures and a worse than expected contraction in GDP as a result of COVID-19. The broader macro-economic trend of deglobalisation also looks set to negatively impact the Japanese economy which is heavily reliant on exports.

In Europe, meanwhile, the passing of the EU support package following weeks of fraught discussions between the Coronavirus-stricken southern nations and the so-called 'Frugal Four' added ballast to the bloc’s recovery, supporting the typically more economically sensitive European stockmarkets, already buoyed by dovish central bank policy.

With global cases continuing to rise, the fate of the global economy remains inextricably linked to the path of and response to 
COVID-19 and volatility is likely to persist until promises of effective vaccinations or treatments can be delivered. A lot has happened already in 2020 we wait with anticipation to see how the remainder of this unprecedented year unfolds.

August 2020: Holiday chaos: leisure and travel scramble to salvage what’s left of the summer season

As we move through the third quarter, it is worthwhile reflecting on what has happened in a busy 2020. At the start of the year, stock markets continued their inexorable rise against a backdrop of US-China trade negotiations, Brexit, and challenged global growth. Then, as we moved through February and into March, the impact of COVID-19 took hold, dominating the economic landscape and affecting almost every sector of the economy. At the epicentre, energy has been, perhaps, the most high-profile casualty as demand for oil fell off a cliff due simply to a lack of activity across the spectrum, from industrial manufacturing to commuting. Though a semblance of normality is beginning to return to some countries, demand for crude thus far remains stubbornly low.

Despite lower fuel prices, the leisure and travel industries were devastated by initial lockdown measures and the recent reinstatement of quarantine for UK holidaymakers returning from Spain and further dented consumer confidence leaving the likes of TUI and Easyjet scrambling to salvage what’s left of the summer season. The slump in global air travel has had a knock-on effect on engine-makers, Rolls-Royce, who announced a £1.5 billion share issue to help bolster its finances.

What sectors have performed well?

Whilst oil and travel have struggled, other sectors have staged a remarkable recovery since the lows of March. The US S&P 500 index (which has much less oil exposure) is now hovering at pre-crisis levels, buoyed by better-than-expected bounce-backs in employment and consumer spending data (though unemployment remains at levels not seen since WW2). Notable beneficiaries through the turmoil include healthcare due both to the short-term crisis at hand and renewed focus on how governments will look to safeguard their health services in future. Tech has also performed well as the adoption of online solutions in the workplace, online retail and social media accelerated. There are signs that the rally is running out of steam with the tech-heavy NASDAQ index pausing for breath in July. This could be a signal that tech is not immune to the woes of the wider economy, as exemplified by Microsoft’s latest results which hinted at softer end-customer demand despite impressive growth.

The key to the initial turnaround in sentiment following the March sell-off was the approach taken by governments and central banks around the world. Both have stepped in with quite extraordinary coordinated fiscal and monetary stimulus to date and it is likely more will be required to sustain the recovery going forward.

What is happening in the UK?

The Bank of England kept interest rates at 0.1% and discussions of negative interest rates at this stage remain just that. The UK Government meanwhile embarked on an unprecedented programme of fiscal stimulus, including the Coronavirus Job Retention Scheme (CJRS), which currently supports the wages of 9.5 million workers. This is due to end in October and, as the UK economy is weaned off life-support, investors will be looking to economic data for signs of life. Though data has generally been surprising to the upside globally, that trend has been distinctly less positive in the UK than other regions. Unemployment figures, once government support is withdrawn, will give a firmer indication of the health of the UK economy, and the time it will take to return to pre-COVID levels of activity.

Despite the subdued outlook, further muddied by Brexit trade negotiations, the Pound – (usually a barometer for the health of the UK economy) has rallied in recent weeks versus the dollar. However, the Sterling recovery has coincided with greenback weakness as risk aversion (which tends to lead the $ higher) subsided.

What is happening internationally?

The Euro meanwhile has rallied against both, riding the European recovery wave, buoyed further by the passing of the EU support package following weeks of fraught discussions between the Coronavirus-stricken southern nations and the so-called “Frugal Four”. The strength in the Euro has been mirrored by European stockmarkets which are typically more (globally) economically sensitive by composition. There are also more encouraging signs about returning to work adding to momentum provided by central banks and the aforementioned stimulus package.

In the US, any goodwill that appeared to be building with President Trump and President Xi signing a ‘Phase 1’ trade deal in January, quickly evaporated as the pandemic took hold. As the presidential election swings into focus, and with Trump firmly lagging behind Democratic rival Joe Biden in the polls, tensions with China have increased with the US withdrawing Hong Kong’s special economic status and closing the Chinese consulate in Houston. Away from the geopolitical fractions, COVID-19 cases have surpassed 4 million and continue to rise across the southern states. Fears that a second wave could dampen the recovery have seen the US Federal Reserve strike an increasingly dovish tone, signalling interest rates are likely to remain in their current 0-0.25% range for the foreseeable. Fed Chair, Jerome Powell, has urged warring Democrats and Republicans to coalesce around a new fiscal support package to ensure Americans can weather the storm.

With global cases continuing to rise, the fate of the global economy remains inextricably linked to the path of COVID-19 and volatility is likely to persist until promises of effective vaccinations or treatments can be delivered. A lot has happened already in 2020 we wait with anticipation to see how the second half of this unprecedented year unfolds.

July 2020: Crude oil vulnerable as transition to a low-carbon world gathers pace 

With the second half of the year upon us, it is worthwhile reflecting on what has happened in a busy 2020. At the start of the year, stock markets continued their inexorable rise against a backdrop of US-China trade negotiations, Brexit, and challenged global growth. Then, as we moved through February and into March, the impact of the coronavirus took hold, dominating the economic landscape thereafter and affecting almost every sector of the economy.

At the epicentre, energy has been, perhaps, the most high-profile casualty as demand for oil fell off a cliff due simply to a lack of activity across the spectrum, from industrial manufacturing to commuting. Though a semblance of normality is beginning to return to some countries, demand for crude thus far remains stubbornly low. This has impacted expectations for oil majors and FTSE 100 heavyweights BP and Shell who were forced to revise their strategies and longer term forecasts for oil prices as the transition to a low-carbon world gathers pace.

What sectors have performed well?

Whilst Oil has struggled, other sectors of the market have staged a remarkable recovery since the lows of March with the US S&P 500 index – which has much less oil exposure - hovering at pre-crisis levels, buoyed by better-than-expected bounce-backs in employment and consumer spending data.

Notable beneficiaries through the turmoil include tech as adoption of online solutions in the workplace, online retail and social media accelerated. Healthcare too has performed well due both to the short-term crisis at hand and renewed focus on how governments will look to safeguard their health services in future.

What is happening in the UK?

Underpinning the turnaround in sentiment and markets has been the approach of governments and central banks around the world. Both have stepped in with quite extraordinary coordinated fiscal and monetary stimulus. The Bank of England kept interest rates at 0.1% and discussions of negative interest rates at this stage remain just that. However, the Bank has remained active in providing liquidity to markets through its purchase of assets scheme.

As lockdown eases, somewhat counter intuitively, the rate of equity issuance in the UK has picked up again with issues from Easyjet, Youngs (pubs) and Unite high profile examples of a notable trend. The desire for equity is in the main to provide either a sure financial footing or to gain access to capital to expand. The return of Brexit uncertainty meanwhile has dampened the medium-term outlook for UK equities, however, with just six months before transitional trade arrangements cease, there is renewed optimism on both sides that a compromise can be found to avoid a cliff-edge come year’s end.

What is happening internationally?

In the US, any goodwill that appeared to be building with President Trump and President Xi signing a ‘Phase 1’ trade deal in January, quickly evaporated as the coronavirus pandemic took hold. As the presidential election swings into focus, and with Trump firmly lagging Democratic rival Joe Biden in the polls, expect the noise to increase and tensions between the two countries to build. Away from the political fractions, Federal Reserve Chair, Jerome Powell, warned in his address to Congress in June that the path ahead remains extraordinarily uncertain having earlier retained interest rates in their range of 0-0.25%. Working in tandem, the US Government has unleashed fiscal stimulus measures in excess of $3 trillion which are still filtering through investment markets but have made a notable impact on the bond market thus far with US Treasury yields tumbling to record lows.

Despite challenges in Germany to the monetary policy approach adopted by the ECB, signs of recovery filtered through stock markets. Typically, European stock markets are more (globally) economically sensitive by composition and more encouraging signs about returning to work have added to momentum provided by central banks and local level stimulus. Wirecard provided Germany with a first it would rather not have with the payments company being the first Dax (the premier exchange in Germany) constituent to go bust. 

Hopes of economic recovery have also aided Asia and Emerging Market stock markets but the latter remain out of favour as they typically lag when the dollar is strong due to the need by countries or companies to borrow in dollars and the increase cost that dollar strength brings.

One major caveat to the continued recovery remains the spectre of a second wave of coronavirus cases which could cause economies to falter once more. A recent surge in America’s southern states and outbreaks in Germany have given investors pause, and with global cases continuing to rise, volatility is likely to persist until promises of effective vaccinations or treatments can be delivered. A lot has happened already in 2020 and we wait with anticipation to see how the second half of this unprecedented year unfolds.

June 2020: Early signs of economic recovery? 

As we draw toward the mid-point in the year it is worthwhile reflecting back on what has happened in the first six months of 2020. At the start of the year, stock markets continued their unstoppable rise against a backdrop of US-China trade negotiations, Brexit, and challenged global growth.

Then as we moved through February and into March it’s fair to say that the impact of the COVID-19 has been felt across almost every sector of the economy but at the epicentre, energy has been one of the most high-profile casualties. Demand for oil fell dramatically due to a lack of activity worldwide such as industrial manufacturing and commuting. In addition to this, Russia and Saudi Arabia came to blows over output.

While some countries are starting to return to a form of normality and tensions of Organisation of the Petroleum Exporting Countries (OPEC) have eased, demand for crude remains stubbornly low. Reflecting this Shell is planning to cut its dividend for the first time since the 1940s as it signalled to investors that it needed to adopt a different approach.

What sectors have performed well?

Some sectors have performed well amidst the turmoil such as tech which has benefitted from accelerated adoption of online solutions in the workplace, online retail and social media. Healthcare has also performed well because of the short-term crisis at hand and the renewed focus this has brought on how governments will look to safeguard their health services over the longer-term.

Key to the turnaround in sentiment and markets has been the approach of governments and central banks around the world. Both have stepped in with quite extraordinary coordinated fiscal and monetary stimulus.

What is happening in the UK?

During May, Chancellor Rishi Sunak announced that the furlough scheme, which currently supports the wages of 8.4m Britons, has now been extended until October. The Bank of England kept interest rates at 0.1% - the lowest in the central bank’s 325-year history – but discussions of negative interest rates at this stage remain just that.

The bank has remained active in providing liquidity to markets. This together with some clarity on finance from companies and where required equity funding through placings and rights issues, has put the FTSE100 on a firmer footing. Notable within this was the owner of the Premier Inn brand Whitbread, where humble pie was served with the rights issue given that the company had carried out a meaningful share buy back at the end of last year at levels materially higher.

What is happening internationally?

In the US, any goodwill that appeared to be building with President Trump and President Xi signing a ‘Phase 1’ trade deal in January, quickly evaporated as COVID-19 took hold. One development brewing that is worth paying attention to is whether Chinese companies like Alibaba will move their secondary US listing to Hong Kong as the tensions between the countries rise. With the election likely to swing into greater prominence as the US moves back to normal, expect the noise to increase. 

Away from the political fractions, the Federal Reserve retained its interest rate range of 0-0.25% to combat the pandemic. It has also announced extensive measures to support financial markets, including a fiscal stimulus package in excess of $3 trillion which is still filtering through investment markets but has made a notable impact on the bond market.

Despite challenges to the monetary policy approach adopted by the ECB in Germany, signs of recovery filtered through stock markets. Typically, European stock markets are more (globally) economically sensitive by composition and more encouraging signs about returning to work have added to momentum provided by Central banks and local level stimulus. 

Hopes of economic recovery have also aided Asia and Emerging Market stockmarkets but the latter remain out of favour as they typically lag when the dollar is strong due to the need by countries or companies to borrow in dollars and the increase cost that the dollar strength brings.

A lot has happened already in 2020 and while the worst is hopefully behind us, we expect there will be more newsworthy stories and influences on markets as this unprecedented year progresses.

Our Financial Planning team

Phil Smithyes
0118 959 7222
Thames Valley
Miles Clarke Adrian Crowe 
020 7842 7187
London
Richard Dean
01242 234421
Cheltenham
Stuart Elder 
0118 959 7222
Thames Valley
Aron-Gunningham
0118 959 7222
Thames Valley
Julian Hanrahan
01622 767676
Maidstone
Dharmesh-Upadhyaya  Dharmesh Upadhyaya
020 7842 7325
London
 

Risk Warning

The views, information, or opinions expressed within this publication are solely those of the individual authors involved and do not necessarily represent those of Crowe Financial Planning Ltd.

Crowe Financial Planning UK Limited is authorised and regulated by the Financial Conduct Authority (‘FCA’) to provide independent financial advice.

The information set out in this publication is for information purposes only and does not constitute advice to undertake a particular transaction. Appropriate professional advice should be taken on specific issues before any course of action is pursued. Any advice provided by a Crowe Consultant will follow only after consideration of all aspects of our internal advice guidance.

Past performance is not a guide to future performance, nor a reliable indicator of future results or performance. The value of investments, and the income or capital entitlement which may derive from them, if any, may go down as well as up and is not guaranteed; therefore investors may not get back the amount originally invested.

The Financial Conduct Authority does not regulate Tax and Estate Planning.