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

Nations watch eagerly as the UK reopens in the face of the Delta variant

As we move into August, European markets have seen their momentum checked by risk aversion stemming from China. It leaves most developed markets roughly flat over the month of July, during this typically more volatile time of the year we can be satisfied with that but reflecting the source of concerns, Asia has had a much more challenging time.

The centenary celebrations of the Chinese Communist Party took place earlier this month in a potentially pivotal moment for policy. China has achieved extraordinary growth for three decades since the reforms of Deng Xiaoping, but now Xi Jinping has a broader agenda which encompasses financial stability, national security and more equal distribution of wealth and income.  He has already begun to exert influence on the e-commerce sector with announcements from China's antitrust regulator around pay guidelines for food delivery platforms, like Meituan, whilst Tencent announced it has suspended user registrations so it can upgrade systems to align with regulations.

Headwinds for Asia extend beyond domestic China as, across the region, there are still low levels of vaccination due to a combination of hesitancy, scarcity and complacency. Where vaccination rates are higher there are concerns over the efficacy of the Sinovac vaccine which China has used to win hearts and minds in the region. This is believed to be lower than foreign equivalents and its resilience against the delta variant is unclear. So, the Covid experience in the east stands in contrast to that of the west where the data continues to suggest that the latest wave of UK infections has peaked. The reopening in the UK in the face of the Delta variant has been eagerly watched by other nations and hopefully evidences that heavily vaccinated regions can tolerate higher infections briefly without overloading healthcare systems.

What is happening in the UK

At home, the growth outlook remains strong though labour and materials shortages have impacted businesses, whilst concerns remain over operating difficulties because of the ‘pingdemic’, where people are unable to work because they have received notification on their phone saying they have to self-isolate. Under pressure, the UK government changed its stance and said some double-jabbed staff at some critical organisations would be allowed to take tests to keep coming to work, rather than self-isolating. Still, the EY ITEM Club forecasts that the UK will see GDP growth of 7.6% this year, the fastest growth since 1941. It forecasts 6.5% growth in 2022.  Developing this further, it said the expectations of a bounce-back in consumer spending and supportive macroeconomic policy contributes to the largely positive economic outlook. But EY adds that questions remain over inflation prospects. It said inflation will be 3.5% by the end of 2021 which is above the Bank of England’s long-term target. With inflation concerns rumbling on in the background, sentiment at the Bank of England turned slightly more hawkish with Deputy Governor Dave Ramsden announcing he could see “the conditions for considering tightening being met somewhat sooner than I had previously thought”.

What is happening in the US?

In the US, the S&P 500 hit all-time highs earlier in July as US Treasury yields dipped back to levels last seen in February. Of course, the lower bond yields go, the better it is for financial assets.  This is partly because they reduce financing costs and partly because they increase economic activity, but largely because they expand valuations. In a low interest rate environment, the lack of ways to preserve wealth is supportive of stocks. Lower bond yields particularly benefit those assets where a large share of the returns they generate come later in their lives – i.e. growth. So, we have seen some healthy outperformance of growth, technology and the US market (which is rich in growth and technology) on that basis.

In this supportive environment, and with earnings season in full swing, companies are typically reporting well ahead of analyst forecasts. However as is sometimes the case with the stockmarket there was a case of travel and arrive in some share prices.  Prominent technology names reported bumper numbers with Microsoft and Amazon’s cloud businesses, Amazon AWS and Microsoft Azure, both growing and effectively stretching their leads in this key area of infrastructure.  Stat of the earnings period was that Apple’s Air pods generated more revenue in 2020 than Spotify and Uber combined. The earnings bonanza extended beyond the tech leaders as a raft of companies including Johnson & Johnson, Union Pacific and Verizon, beat expectations. To be fair favourable comparisons from the equivalent quarter of 2020 has helped but encouragingly cash generation and balance sheet strength showed through.  From here it is reasonable to expect the rates of like for like growth to moderate, but there are still high hopes for the rest of the year and beyond as change and investment implemented meets improving consumer activity and confidence.

Previous months

July 2021 - Freedom day and beyond

As we pass the half-way point in 2021, the pandemic lingers on with the first 'Freedom Day', 21 June, pushed back to 19 July. Ahead of this, the UK Government has ramped up efforts to get as many adults double jabbed as possible with the link between new cases and subsequent new hospitalisations dramatically weakened when people are fully vaccinated.

Indeed, though the Delta variant continues to proliferate through the country as lockdowns have eased, it appears the vast majority of cases are amongst younger age groups, and whilst this remains the case, any return to greater restrictions appears unlikely.

That would certainly appear to be the message Sajid Javid was keen to project after replacing Matt Hancock as Health Secretary, using his first speech to Parliament to say, “we know we cannot simply eliminate it; we must learn to live with it”.

Furlough measures too are beginning to be wound down with the Government now paying 70% of wages instead of 80%, with the 10% gap now the responsibility of employers.

Inflation increase causes a stir

Though still an important factor, Covid-19 has been supplanted by inflation expectations as the key determinant of market movements with jitters around potential overheating of the economy, rampant inflation, and central bank policy weighing on investor sentiment.

The US core personal consumption expenditures price index, an important inflation gauge, rose by 3.4% in May from a year ago – the biggest increase since 1992. The Bureau of Economic Analysis said headline inflation, which includes volatile food and energy prices, rose by 3.9% from a year ago – the biggest increase since August 2008, just before the worst of the financial crisis hit. The increase partly reflected base effects from a year ago, when prices were supressed by the pandemic, as well as supply chain disruptions and growing demand as the economy reopens.

Markets rise to all-time highs!

Despite this, global equities rebounded towards the end of June after more dovish comments from the US Federal Reserve whilst Republican and Democratic senators reached a bipartisan agreement on a new US infrastructure package.

The c.$1tn infrastructure package allocated to roads, bridges and broadband over the next 8 years is well below the original $2.3tn proposed in March but represents a win nonetheless for President Biden who is putting into action his promise to work across the aisle and attempt to put an end to the polarisation which stymied progress in the past.

With this backdrop, the Vix volatility index – a measure of investor fear – has tumbled to the lowest levels seen since COVID-19 started to rattle markets with the S&P 500 and the Nasdaq reaching new all-time highs to close out the first half of the year (the second best first ½ year since the dot-com bubble!) Interestingly, while the S&P 500 rose 14.4%, the more economically sensitive Russell 200 index increased 17.1%.

Sector wise YTD, Energy led the pack in the US +42.4%, followed by Financials +24.5% and Real Estate +21.7%, which is indicative of the vaccine driven relief rally these industries desperately needed.

What’s happening in the UK?

The UK’s FTSE 100 was also lifted by the Bank of England’s assertion that while inflation could reach 3% in the coming months, this would prove to be a temporary phenomenon. The Bank’s Monetary Policy Committee indicated it would prefer to allow the inflation wave to break and recede rather than intervene at this stage, voting unanimously to retain interest rates at 0.1%.

Are they right to keep things unchanged or will outgoing Chief Economist, Andy Haldane’s predictions of 4% this year, be proved right in the fullness of time? For now, markets appear happy to accept what monetary policy makers are telling them with sentiment echoed by the European Central Bank, boosting the pan-European STOXX 600.

What is happening internationally?

Over in Asia, with the much maligned and delayed Olympics just around the corner, Japan’s vaccination drive is gathering pace though potential supply constraints could derail progress and with business activity still in decline, the near term outlook remains uncertain.

China’s central bank increased its injection of short term cash into the financial system for the first time since March amid growing demand for liquidity. Meanwhile, President Xi marked the 100th anniversary of the founding of the Chinese Communist party with a nationalistic address in Beijing. He praised the importance of the party and rigorously defended sovereignty, warning that any interference would be met by a 'great wall of steel'.

The FT recently reported that US & Japan have been secretly discussing methods of repelling a potential Chinese invasion of Taiwan, and it was notable that President Xi stated that unification with Taiwan remained “a historic mission and unshakeable commitment of the Chinese Communist party”. While the mood at the centenary was celebratory, Chinese domestic markets were less enthused by the presentation, as there were expectations of more supportive rhetoric.

June 2021 - Market momentum - the UK recovery continues

Investment markets have been particularly kind during the first four months of the year. No doubt there will now be much discussion in the press of selling in May, going away and coming back on St Ledger’s day! Looking at Macro economic factors, February’s bond yield spike, and the associated volatility, seems distant and the last two months have been unexpectedly calm with interest rate messaging remaining highly supportive. Looking at fundamentals, equity volatility has been a little elevated, as the earnings season produced an overall picture of results ahead of expectations but with some 'travel and arrive' share price movements within this, particularly in the US. 

What is happening in the US

Staying with the US, in addition to the $2.2 trillion stimulus package and the much debated $900 billion package passed under President Trump last year, Joe Biden has added to the fiscal arsenal with the $1.9 trillion package passed into law in March. This was followed quickly by two further proposals, with the key difference from the first three packages already passed, being that the spending is meant to be paid for by tax hikes. The first proposal - the American Jobs plan - amounts to $2.2 trillion in new spending. It’s focused on hard infrastructure (bridges, roads, etc.) which Biden plans to pay for via corporate tax hikes. This was followed up by a 'soft' infrastructure proposal - the American Families Plan - totalling $1.8 trillion.  Included in this package is spending on education, childcare, and paid family and medical leave which Biden plans to pay for with tax hikes on high earners and wealthy individuals.

A better outlook for corporate profits

The increased taxation burden led to concerns over the impact it would have on the markets. However, a better outlook for corporate profits, as more regions reopen their economies and some of the pent up demand gets deployed, suggests a recovery in earnings has further momentum and will help support valuations. Developing the comments touched upon above about the positive earnings season, the trend is perhaps best illustrated by looking at the outcomes at two different high-profile businesses; Unilever’s Q1 revenue growth was ahead of target, lifting fears about emerging market economies and, underlying the confidence, the company announced an unexpected $3 billion share buyback. Amazon was one of the most obvious lockdown winners, but the company posted another strong set of numbers benefitting from the cloud computing revolution which helped offset tough like for like sales comparisons.

What is happening in the UK

Back in the UK, Labour suffered a thumping loss in the Hartlepool by-election in a continuation of trends established in the 2019 General Election with traditionally solid Labour seats in the North of England falling to the Conservatives. Results from English council elections also captured a Tory swing which goes against the conventional wisdom whereby the party in Government takes a beating in the local elections. Despite the Government being in power for 11 years and recent pressure over cronyism and the PM’s flat refurbishments, Labour failed to win back working-class Leave voters and pressure is mounting on Sir Kier Starmer with the route back to power looking a long way off.

Scotland’s constitutional future

In Scotland meanwhile, the SNP increased their representation in the Scottish Parliament and, with pro-independence Greens also doing well, there is on the face of it an overall majority in parliament in favour of a new referendum on Scotland’s constitutional future. However, the same was true in the previous parliament and the UK Government will point to the SNP’s failure to gain an outright majority as justification to kick “indyref 2” demands into the long grass. How long this remains a tenable position could depend on the speed and shape of the COVID-19 recovery with Nicola Sturgeon looking to kick off a fresh independence debate as soon as the immediate crisis has abated.

UK Economy: Bank of England forecasts highest growth rate in 70 years

In purely economic terms, it appears that the UK recovery is gathering pace, with the Bank of England upgrading its growth forecasts for the UK to 7.25% for 2021 (previous estimate was 5%) which would mark the highest growth rate in 70 years. Governor, Andrew Bailley confirmed inflation is likely to remain under control over the longer term though they expect a spike towards the end of the year. Rates remain on hold at 0.1% with any talk of negative rates now in the rear view mirror.

Internationally: Coronavirus surges through India and Japan

As the reboot in the UK and US gains momentum, other major economies continue to stall. India is reeling from a savage surge in Coronavirus cases which overwhelmed health services, with PM Narendra Modi coming under increased criticism over his handling of the second wave. Japan, just weeks away from hosting the Olympics, is itself struggling though a third wave of infections which has impacted relative equity performance as investors gravitated towards countries further ahead in terms of vaccinations and recovery.  A big issue is that after a series of scandals over the past 50 years, vaccine scepticism is Japan high. As such, the Japanese government has moved cautiously on the approvals front in order to build confidence among the public. The downside to that approach is that Japan’s vaccination rate is well behind that of the rest of the developed world.

A record leap for China’s economy but tension continues over human rights

On a more positive note, Chinese economic output leapt 18.3% year on year – the fastest rate on record – as global activity rebounded. That said we have seen a steady stream of headlines emphasising the new tensions that exist between China and the rest of the world. This includes terse statements coming from the G7 criticising China over human rights, accusing it of undermining democracy in other countries and pointedly recognising Taiwan (the EU refused to ratify an investment agreement which had been reached at the end of 2020 citing the same issues).

April 2021 - The UK Government‘s reopening plan is well under way

What is happening in the UK

As an action packed first quarter draws to a close, investors will be hoping that the dark months of winter marked the nadir of the Coronavirus Pandemic with brighter days ahead. In the UK, latest studies show that half the population now have COVID-19 antibodies as the vaccine roll out continues at pace, though lumpy supplies could slow progress in the short-term.However, with most of the vulnerable population now inoculated and hospitalisation figures continuing to fall, the UK Government’s reopening plan is well under way with rules around outdoor gatherings loosened and non-essential shops and hospitality venues beginning to reopen. In tandem, Chancellor Rishi Sunak’s eagerly awaited Budget focused on keeping business afloat in the interim, with furlough measures extended out until the autumn and any tax rises to deal with the mounting public debt pushed out until 2023 with Corporation Tax rising from 19% gradually to 25%.

Savings soar for UK households but uncertainty for some sectors continues

With this supportive fiscal backdrop, investors are watching economic signals for clues as to the shape of the recovery. Recent data from the Office of National Statistics showed the UK household saving ratio (average percentage of disposable income that is saved) rose to a record high of 16.1% in the final quarter of 2020, fuelling hopes that economic growth will receive a welcome boost, lifting cyclical stocks, which had been out of favour through much of last year. Interestingly appetite for Deliveroo’s long anticipated IPO has fallen flat, perhaps partly due to concerns over worker rights and corporate governance though investors keeping their powder dry may also point to potentially weakening demand as post-lockdown consumers return to bars and restaurants. The travails of Deliveroo strike a chord with the wider rotation from the tech/growth winners, which dominated last year’s recovery, into those areas worst hit by the pandemic and which stand to benefit the most from an end to restrictions. Some sectors however remain in the dark with travel and aviation facing continued uncertainty as the UK wrestles with easing foreign travel restrictions in the face of rising cases on the continent and the threat of new variants to progress at home.

What is happening in Europe

Europe’s sluggish vaccination programme continues to be plagued by supply issues and concerns over the safety and efficacy of the AstraZeneca jab. Though given the all clear by the European Medicines Agency, misgivings remain, with Germany suspending use of the jab in under-60s whilst blood clot concerns are investigated. Meanwhile, case numbers continue to head in the wrong direction prompting France’s President Macron to announce new lockdown measures, denting short term growth expectations.

What is happening in the US

In the US, hot on the heels of his $1.9tn covid recovery package, President Biden has unveiled his latest plans to reshape and revitalise the US economy following the pandemic, with a $2tn infrastructure spend announced alongside corresponding corporation tax rises (increasing the rate to 28%). His ambition was clear, calling it the biggest public investment programme since the creation of the interstate highway system and the Space Race of the 1960s. As usual however, this sets the stage for weeks of delicate negotiations on Capital Hill, given Democrats hold slim majorities in both chambers of Congress.

A balancing act for the US Federal Reserve

Biden will be pleased with the continued signs that the US economy is gradually recovering, as ADP private payrolls increased 517,000 in March, the most in six months, while the Conference Board Consumer Confidence reading for March was 109.7, well above consensus estimates. With US economic data strengthening, concerns over inflationary pressures linger on, pushing treasury yields higher and catalysing the rotation from growth to value. Fears that the mountain of monetary and fiscal stimulus could cause an already strengthening economy to overheat will keep the Federal Reserve on its toes, with Chairman, Jay Powell, reaffirming the Fed’s commitment to low interest rates and a more flexible approach to inflation targets in an effort to assuage market concerns.

China flexes its muscles

Biden’s spending plans have been cultivated with a view to redressing perceived competitive advantages built up by China which has stolen a march on western economies over the past year having successfully supressed Coronavirus. Tensions between the world’s two largest economies remain high with Nike one of a number of companies to face the wrath of Beijing after airing their concerns over the treatment of Uighur Muslims in Xinjang. H&M faced a similar backlash whilst individual sanctions have been imposed on vocal critics of the Chinese regime, including former Tory leader Sir Iain Duncan Smith. With China flexing its muscles, there is a renewed focus on global supply chains and the recent blocking of the Suez Canal and the global shortage of semiconductors has given ammunition to those who argue globalisation has gone too far.

March 2021 - UK seeks a hopeful Spring!

March has heralded a start to some very small steps along the pathway toward 'normal' as we mark the anniversary of the World Health Organisation declaring COVID-19 to be a global pandemic. Few people would have foreseen the turmoil of the past year which has sadly seen over 125,000 British lives lost to Coronavirus whilst the UK economy shrank by 10% in 2020 with millions of jobs put in jeopardy. However, with vaccinations now reaching the arms of over a third of the UK population, the path to escape the clutches of this deadly virus, for now, remains on track.

The UK continues to enjoy a prominent position in the great inoculation race and emboldened by this progress, UK Government has signalled they will seek to end all Coronavirus restrictions by 21 June. Only time will tell whether Boris Johnson has made a rod for his own back or not but with the vaccination programme starting to have a meaningful impact on hospital admissions and deaths amongst the elderly, the country appears to be moving from the depths and despair of a long winter into a more hopeful spring. The same cannot be said for our European neighbours where case numbers are once again rising and vaccination programmes have been stymied by contractual and manufacturing delays, providing an early test for post-Brexit relations.

What is happening in the UK?

The UK government’s economic focus has shifted to an expansive agenda for a global United Kingdom beyond the pandemic, with the G7 and UN Climate Summit earmarked as important platforms for this message. Closer to home, Rishi Sunak presented his much anticipated Budget, with notable relief that pandemic support will remain in place for many months to come, and the inevitable tax increases needed to pay the COVID-19 bill have been deferred, for now. Inheritance Tax, Capital Gains Tax, and pensions remained unchanged in the Budget, with thresholds frozen until 2026 alongside income tax, which will be frozen for the same period after this year’s previously announced threshold increase. One big mover is Corporation tax, which is set to rise to 25% in April 2023, up from the current rate of 19%, for companies earning > £250,000. However, the Chancellor was quick to point out that 70% of businesses will be unaffected, and that the UK would continue to have the lowest corporation tax of the G7. In summary the Budget was tilted toward tax receipts benefitting from a recovery in incomes and values.

What is happening in the US?

In the US, President Joe Biden has made strides progressing his own agenda and to make the all-important impression of momentum in the first 100 days of office, pledging to vaccinate the adult population by mid-May. The debate in the US at present sits around the extent of and the reach of future stimulus for the economy from Government in addition to Central Bank support. Whilst the debate will likely continue for some time one thing seems certain - the approach of the Federal Reserve and others will be to keep interest rates lower for longer. Though Fed Chair, Jerome Powell, reiterated these assurances in his recent testimony to Congress, markets are concerned about the impact the proposed $1.9 trillion fiscal stimulus package could have on inflation. Worthwhile pausing on that number for little time -

One million seconds equal 11 and 1/2 days. One billion seconds equal 31 and 3/4 years. One trillion seconds equal 31,710 years.

There could well be many more correction phases to come in the months ahead, but it will probably take the Fed to start flagging a more hawkish stance before the equity bull market comes up against more sustained resistance. In the meantime, value stocks have outperformed in recent weeks, partly driven by the growth pullback, with investors taking profits in Tech and clean energy, but also by economic optimism. Banks, which are the biggest value sector, have really responded to the rise in bond yields recently. And with investors worried about high valuations, global banks are attracting inflows. Energy has also outperformed recently but this has been fairly weak in light of the big surge in the oil price, which probably reflects investor concerns around the long-term outlook for oil and gas companies.

What is happening internationally?

Away from the influences in the UK and US, China remains a point of reference and interest for stockmarkets and politics. Having been one of the global growth bright spots of the last 12 months, China is now showing signs its recovery is cooling, as the high-flying PMIs continue to roll over. However, the Government has recently emphasised its economic confidence, signalling a target of at least 6% growth this year at the National People’s Congress. The Party’s also signalled a renewed focus on achieving 'self-reliance' in a number of critical technology sectors as well as ambitious environmental goals, including reaching peak carbon dioxide emissions by 2030 and net-zero emissions by 2060.

Though these environmental aims are to be welcomed, wider debates about China’s approach to Rights, Governance and associated matters persist.  In this respect President Biden, and the wider international community, have a different challenge and will need to consider an alternative approach to that adopted by prior administrations if they want to encourage change.

February 2021 - The great inoculation race

As we move through the first quarter of 2021, it is a balance of acknowledging the societal impact of Covid which has been immeasurable and the heightened containment restrictions with the forward-looking news of the vaccine.

The widespread lockdown measures dramatically accelerated the digital revolution, with a shift to remote working, online shopping, digital entertainment, and even virtual exercise classes. This narrative was extended in extreme by recent coordinated movements of retail investors aiming to put a squeeze on short selling hedge funds by driving up the price of beleaguered stocks such as US retailer GameStop. Though the strategy was ultimately folly, with many smaller investors burned amidst the volatility, this erratic behaviour, and the move from GameStop to trading in the price of silver has prompted fears that Animal Spirits are on the rise.

Meanwhile, the collective effort by the scientific community in not only producing and rolling out approved vaccines but also increasing the potential choice of vaccines and combined outcomes has been extraordinary. The UK is leading the pack in the great inoculation race which offers the potential for a relaxation of restrictions. The same cannot be said for our European neighbours who have been stymied by contractual and manufacturing delays, providing an early test for post-Brexit relations. Global equities looked beyond near term doom and gloom to end the rollercoaster year on a positive note, with many markets around the world reaching record highs.

What is happening in the UK?

Sentiment has been buoyed further in recent weeks with the Bank of England and US Federal Reserve anticipating a sharp recovery in activity and employment once vaccination levels reach critical mass. A return to normality cannot come soon enough for struggling leisure and tourism businesses with UK government support measures, such as the furlough scheme, slated to end in Spring. The toll of the pandemic has already claimed several high profile victims with Debenhams and Arcadia leaving a large hole in UK high streets. The purchase of their various fashion brands, and jettison of their physical stores, by online competitors, Boohoo and ASOS shows the changing nature of retail in the UK in a microcosm.  In simple terms Boohoo and ASOS have the financial strength to take risk and invest at this point and this confidence hasn’t been restricted to these names but is starting to show through in a pickup in merger and acquisition and IPO activity. With regard to the latter the UK stockmarket welcomed, with some enthusiasm, Dr Martens and Moonpig as new entrants in the last month despite their “retail” narrative.

What is happening internationally?

In the US, President Joe Biden has made strides progressing his own agenda and to make the all-important impression of momentum in the first 100 days of office. The debate in the US at present sits around the extent of and the reach of future stimulus for the economy from Government in addition to Central Bank support.  Whilst the debate will likely continue for some time one thing seems certain - the approach of the Federal Reserve and others will be to keep interest rates and bond yields lower for longer even if this means accepting some higher levels of temporary inflation or unintended side effects such as the GameStop circus which would be much less likely in a world of lower restrictions and higher interest rates.

Away from the influences in the UK and US, China remains a point of reference and interest for stockmarkets and politics; economic activity remains robust and much above that reasonably expected in the circumstances, but this is balanced by events like the Ant Financial debacle and wider debates about China’s approach to rights, governance and associated matters.  In this respect President Biden, and the wider international community, have a different challenge and will need to consider an alternative approach to that adopted by prior administrations if they want to encourage change.

January 2021 - New year, new hope

As we enter 2021, you will be forgiven for wanting to quickly forget the previous year. The societal impact has been immeasurable and the heightened containment restrictions have been met with dismay.

That said, the collective effort by the scientific community in producing and rolling out approved vaccines has been extraordinary, while global equities defied the doom and gloom to end the rollercoaster year on a positive note, with many markets around the world reaching record highs.

The widespread lockdown measures dramatically accelerated the digital revolution, with a shift to remote working, online shopping, digital entertainment, and even virtual exercise classes. This has led to innovative, healthcare and technology centric businesses thriving, while economically sensitive industries have experienced a challenging environment.

What is happening in the UK?

In the UK, after years of negotiating, a last-minute Brexit deal was confirmed on Christmas Eve. This was broadly welcomed as it avoided the dreaded 'no-deal'; however, it has been criticised for “selling out” UK fishermen and leaving UK financial services without full access.

In addition, while expected, the increased bureaucracy will be a headache for businesses already on life-support from the effects of the pandemic. Despite this, the new set of ‘certainties’ should allow businesses to plan, and importantly invest, for the future which is positive. The government’s focus has shifted to an expansive agenda for a global United Kingdom, with the G7 and UN Climate Summit earmarked as important platforms for this message.

Closer to home, earlier this month Rishi Sunak announced an additional £4.6 billion support package for struggling businesses affected by the greater restrictions, with particular focus on retail, hospitality, and leisure companies. This has been received positively, but many have cautioned that the Chancellor must remain wary of a cliff-edge scenario in the spring as support measures such as the furlough schemes are ended.

What is happening internationally?

The big news in the US was the announcement of Joe Biden as the clear winner of the 2020 US presidential election. At the time of writing President Trump continues to challenge the result, and recent events in Capitol Hill have been concerning.

In Georgia, two Democrats have captured the incumbent Republican seats within the Senate. This is hugely significant as when confirmed, will result in a divided Chamber, with 50 seats for each party. As a result, Kamala Harris, the vice-president-elect, will have the power to cast the decisive vote.

The materialisation of the ‘blue wave’ gives Joe Biden the platform to implement his progressive agenda. In the near-term, expect greater fiscal stimulus to combat the pandemic, while longer term, spending may focus on infrastructure, clean energy, and education.

Away from the presidential election, on a geopolitical level, after taking a backseat, trade tensions resurfaced last year with the US Government laying the blame for the creation of the coronavirus squarely at the door of their Chinese counterparts, as well as Donald Trump targeting Chinese software companies deemed a risk to national security. While Joe Biden is expected to have a hard-line approach to relations with China, Beijing is hopeful that their relationship will be more predictable.

It will be interesting to see the evolving health of the US economy, particularly with concerning COVID-19 data, although, there was notable relief with confirmation of a new stimulus deal despite political tribalism.

A positive landscape for investors

As worrying as this outbreak remains, the prospects for 2021 appear brighter. If the past year has taught us anything, it is that predicting the course of a pandemic is difficult, however; effective roll-out of the vaccines, alongside continued technological innovation and a recovery in global economic growth should provide a positive landscape for investors.

Challenges remain, however, and the path to recovery is unlikely to be a straightforward one. Amidst such ongoing uncertainty, it is important to remain focused on the longer term picture, investing in a diverse range of assets across different geographies, whilst staying alert to opportunities, pitfalls and changing investment trends in the near term.

December 2020 - A new President Elect and a new vaccine ready to roll, makes for an action-packed December

It has certainly been an unpredictable and eventful year and December was no different to what had come before!

What’s happening internationally?

The protracted and divisive US Presidential Election appears to have reached the end game with Joe Biden announced as the clear winner, becoming President Elect until January when he gets the keys to the White House.

At the time of writing, a concession from President Trump has been suggested but has not officially materialised and thus far his litigious attempts to dispute the results, on the basis of voter fraud and irregularities, have failed to gain any traction and are not expected to overturn the current consensus of a Biden win.

Though Trump’s tenure appears to be coming to an end, one thing is clear - the pollsters once again underestimated his appeal and both he and Biden have amassed record numbers of votes with turnout at a dramatically higher level than has been seen in recent times. Consequently, the projected Democratic Sweep of the House, Senate and Presidency does not look likely to transpire, meaning any legislative ambition from the new president is likely to be stymied. The initial reaction was that this should be positive for Tech stocks, such as Facebook and Google, who feared a raft of new regulation if the Democrats took control of all three governmental branches.

The new political landscape in the US may also be detrimental to efforts to get a new fiscal stimulus package ratified in the near term, with Trump remaining in office until January, and the Republican-led Senate unwilling to agree to the larger package proffered by the Democrats. Joe Biden will be hoping both parties can begin to coalesce around a deal sooner rather than later. One thing that is clear and has helped markets push higher is that political risk and uncertainty seems to be reducing from the extreme levels that were reached at times in the Trump administration.

Timing is everything they say and news that Pfizer, Moderna and AstraZeneca are ramping up vaccine production and delivery following successful trials will be a timely boost to the President Elect but it will have the incumbent cursing his luck. Positive vaccine news flow has been heralded by global markets who reacted euphorically to growing hope that a return to normal life could be within sight, something that had seemed a little more distant as the nights draw in.

What is happening in the UK?

Indeed, the UK has become the first nation to give the green light for the Pfizer vaccine to be rolled out and the Government is turning its attention to the logistical headaches of mass inoculations. In the meantime, Governments at home and abroad will continue to walk the tightrope between economic harm and damage to public health. The widescale lockdowns in the UK of the past month have helped bring virus numbers back under control but further dented UK economic output in the run up to Christmas. This proved to be the final straw for Topshop owner, Arcadia, and Debenhams who collapsed into administration, becoming the highest profile casualties of the crisis and demonstrating that those brands who fail to move with the times, do so at their peril.

One positive has been that the Furlough Scheme has been extended through until March, marking a significant change of tact from Chancellor, Rishi Sunak. Perhaps an inevitability given his less than optimistic assessment of the UK’s economic outlook in his Spending Review which warned the UK economy is likely to shrink by 11.3% this year and unemployment could hit 7.5% (2.6 million out-of-work) next spring. As the Chancellor ponders how to pay for the Governments fiscal support with tax rises in his crosshairs, one measure has already been announced – the measure of inflation used to calculate index linked gilt repayments will be revised downwards from 2030, reducing the Government’s liabilities whilst denting investor returns with the lower based CPIH measure replacing the more favourable RPI.

In order to provide market stability central bank support remains abundant with the Bank of England voting unanimously to increase purchasing of UK Government bonds by a further £150 billion in early November (bringing the total quantitative easing program to £875 billon). The Bank kept interest rates at 0.1% and discussions of negative interest rates have been rebuffed for now.

What sectors have performed well?

One of the by-products of the Vaccine news is that this has changed the narrative and leadership within stockmarkets.  Whilst some of the online beneficiaries of lockdowns, such as Ocado in the UK, have fallen back as a result, big winners include the beleaguered aviation industry with British Airways owners, IAG, and engine makers, Rolls Royce surging following the announcement as investors eye an uptick in economic activity.  Notably, both announced equity finance to shore up their balance sheets prior to this news.

A further point of note is that recent failures of Debenhams and Arcadia are private businesses without equity finance options and where balance sheets were stretched at the start of the year. There has also been a change in the performance of markets, with positive momentum lifting the S&P 500 to all-time highs.  The more economically sensitive UK has outperformed the US and the more cyclical plays in Europe and Emerging markets have started to produce gains that many thought improbable.

Looking forward

Whether or not the vaccine can be rolled out quickly remains to be seen and UK stocks remain at valuations well below pre-COVID levels. However, it is important to remember that if a vaccine is distributed effectively, it could lead to a surge in activity in forthcoming quarters, as economies reopen. Through the year is almost over, we shall see what else 2020 can deliver in terms of newsflow and change!

November 2020: November brings fireworks and not just for the UK!

In what has already been an action-packed year, November managed to open with a bang!

What is happening internationally?

The protracted and divisive US Presidential Election appears to have reached the end game with Joe Biden announced as the clear winner, becoming President-elect until January when he gets the keys to the White House. At the time of writing, President Trump has not conceded defeat, disputing the results and filing lawsuits in relation to allegations of voter fraud and irregularities, a process which is not expected to overturn the current consensus of a Biden win. Though Trump’s tenure appears to be coming to an end, one thing is clear - the pollsters once again underestimated his appeal and both he and Biden have amassed record numbers of votes with turnout at a dramatically higher level than has been seen in recent times. Consequently, the projected Democratic Sweep of the House, Senate and Presidency does not look likely to transpire, meaning any legislative ambition from the new president is likely to be stymied.  

Positive news for Tech?

The initial reaction was that this should be positive for Tech stocks, such as Facebook and Google, who feared a raft of new regulation if the Democrats took control of all three governmental branches. The new political landscape in the US may also be detrimental to efforts to get a new fiscal stimulus package ratified in the near term, with Trump remaining in office until January, and the Republican-led Senate unwilling to agree to the larger package proffered by the Democrats. Joe Biden will be hoping both parties can begin to coalesce around a deal sooner rather than later. One thing that is clear and has helped markets push higher is that political risk and uncertainty seems to be reducing from the extreme levels that were reached at times in the Trump administration.

High hopes for a vaccine and return to normality

Timing is everything they say and news that Pfizer are ramping up vaccine production following successful trials will be a timely boost to the President-elect but it will have the incumbent cursing his luck. Pfizer’s announcement has been heralded by global markets who reacted euphorically to growing hope that a return to normal life could be within sight, something that had seemed a little more distant as the nights draw in. We should find out more at the end of this month but for now, Governments at home and abroad continue to walk the tightrope between economic harm and damage to public health.

What is happening in the UK?

Hopes of avoiding widescale lockdowns in the UK have been dashed as cases continue to climb and new England-wide restrictions have subsequently been introduced, further denting UK economic output in the run up to Christmas. One positive in this scenario has been that the Furlough Scheme has been extended through until March, marking a significant change of tact from Chancellor, Rishi Sunak.  However, unemployment figures – a lag indicator - continue to rise, and redundancies for the three months to September were a record 314,000. In order to provide market stability at this point Central bank support remains abundant with the Bank of England voting unanimously to increase purchasing of UK government bonds by a further £150 billion in early November (bringing the total quantitative easing program to £875 billion). The Bank kept interest rates at 0.1% and discussions of negative interest rates have been rebuffed for now.

What sectors have performed well?

One of the by-products of the Vaccine news is that this has changed the narrative and leadership within stock markets. Whilst some of the online beneficiaries of lockdowns, such as Ocado in the UK, have fallen back as a result, big winners include the beleaguered aviation industry with British Airways owners, IAG, and engine makers, Rolls Royce surging following the announcement as investors eye an uptick in economic activity. Notably, both announced equity finance to shore up their balance sheets prior to this news. There has also been a change in the performance of markets, albeit over a period of days, rather than a more deep-set trend. The more economically sensitive UK has outperformed the US and the more cyclical plays in Europe and Emerging markets have started to produce gains that many thought were highly unlikely.

An encouraging outlook

Whether or not this vaccine turns out to be the silver bullet remains to be seen and these stocks remain at valuations well below pre-COVID levels. However, it is important to remember that if a vaccine is developed and distributed effectively, it could lead to a surge in activity in forthcoming quarters, as economies reopen. We shall see what else 2020 can deliver in terms of newsflow and change!

October 2020: There really is less than 100 days ‘til Christmas!

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.

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
Aron-Gunningham    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.