The World In A Week - It's Tough At The Top
The sustained rally in global equities we have seen since the lows in March appeared to lose further steam last week. MSCI ACWI lost -1.4% in local currency terms, although this translated into a loss of only -0.1% for GBP investors as the pound sterling continued to weaken against its major trading partners. The fall was led by European stock as well as Emerging market equities. The Japanese stock market proved resilient and returned +0.04% in GBP terms, which is pleasing as this is our largest equity overweight and it tends to perform well in stressed environments.
Within Fixed Income, global treasuries rallied +0.2% and High Yield bonds sold off by -1.7%. The slight fall off in High Yield debt is unsurprising given the remarkably strong rally it has had since April.
Market action such as this has commentators pondering whether we have reached the top of the current rally and are now due a more sustained correction. This view is supported by a number of factors of which we are constantly mindful. The rally has been very strong from the March lows and has been concentrated among a small group of equities, namely large-cap US growth stocks. These FANG+ names began to wobble from their lofty valuations over the course of September and may not prove to be the safe haven they were in the initial February/March sell off. Coupled with a second wave of COVID cases and the forthcoming US elections, investors will likely do well to maintain exposures that are balanced between geographic and style-diversified equity drivers and liquid non-equity risk-reduction components.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 28th September 2020.
The World In A Week - No Change
It came as no surprise that the Federal Reserve left rates unchanged last week. Future rate hikes are likely to remain off the cards for the foreseeable future, at least until inflation rises above 2% and remains above this level for some time, a situation which is unlikely to occur until 2023. The picture in the US is looking a little rosier than first thought, although still in contractionary territory, GDP has been revised from -6.5% to -3.7%. However, the spectre of unemployment and softening data means that growth for 2021 has been revised down from 5% to 4%.
There was also no change at the Bank of Japan, who left rates unchanged. The new Prime Minister, Yoshihide Suga has pledged to remain accommodative and will be ready to introduce further monetary easing if required, but for now, will follow the current expansionary policy set out by Shinzo Abe.
In the UK the Bank of England has shifted its focus to the real threat of a ‘no deal’ Brexit, with preparations for this outcome now underway. Relations between the UK and EU have soured since the Internal Market Draft bill, which contravenes international commitments. This deterioration in communication has also had a knock-on effect to the Bank of England outlook for growth and inflation. Interest rates remain unchanged.
Global equity markets continued in their erratic fashion last week, although to a lesser extent; volatility as measured by the CBOE VIX index also moved lower, although was short-lived, spiking up to over 30 at time of writing, as a result of losses early this morning.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 21st September 2020.
The World In A Week - Not Plain Sailing
Brexit tensions have managed to hit the headlines once again. It was inevitable that the devil would be in the detail and a particular article within the Brexit deal could leave the UK vulnerable.
Article 10 is causing consternation within Downing Street, as there is a risk that an interpretation of the clause could mean being caught foul of the European Union (EU) State Aid rules. This has meant overriding elements of the withdrawal agreement to placate legal threats from Brussels. It does mean the new bill will have to be voted upon which may open the door for rebellious Conservative MPs to act on their grievances. The waters on which to navigate this path have become extremely choppy indeed, meaning we face yet another uncertainty in the saga of our exit from the EU.
Uncertainty has also been hinted at by Chancellor Rishi Sunak, who has raised the possibility of a delay to the autumn budget. Mr Sunak has requested production of official economic forecasts, which are needed in order to prepare for the budget. What is unusual though, is Mr Sunak asked for these without outlining any tax or spending plans, which are needed in order to call a budget. This has left the door open for a deferment of the autumn budget, which would seem sensible as making any plans when coronavirus cases are on the rise makes any economic forecasting almost impossible to calculate. It is likely the budget announcement will be delayed until the spring but will need to be set before the new financial year in April 2021.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 14th September 2020.
The World In A Week - Big Tech Bubble
US stocks fell sharply last Thursday and Friday with the high-flying technology stocks experiencing the biggest contractions. Shares for Apple, Facebook and Amazon fell by more than 6%, Alphabet and Microsoft both fell by 4%. The pandemic has seen the major US technology stocks rally well, having reaped the benefits from the new working at home environment. The big sell off at the end of last week has been described as a healthy market correction since tech stocks soared in value in August. Meanwhile, it emerged on Friday that the Japanese conglomerate Softbank bought billions of dollars’ worth of equity derivatives which contributed to the rally in big tech stocks in recent months. Softbank founder Masayoshi Son has performed very aggressive bets on equity derivatives with estimated trading gains of $4 billion. Last week also saw the US unemployment rate fall to 8.4% and another 1.4 million new jobs added to the labour workforce.
Market volatility is expected to continue as the US Election campaigns gather momentum ahead of November’s presidential vote. The polls currently favour former Vice-President Joe Biden with almost 40% of the vote set to be conducted by mail, which has not been well received by President Trump, an avid protestor against a postal election. Despite President Trump’s objections, his 2016 winning election saw a surprise 25% of the election votes cast by mail.
Elsewhere, Brexit negotiations continued to stall amid diverging views on fishing restrictions in place and the levels of governance the UK is willing to adhere to. Talks are to re-commence on Tuesday as negotiators head into the eighth round of talks.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 7th September 2020.
The World In A Week - When You're in a Jackson Hole... Stop Digging
Last week was broadly speaking a risk-on environment, as Equity market valuations pushed ever-higher in their dramatic rebound from the lows experienced in April. The MSCI All Country World Index (ACWI) of global equities was up +2.3% for the week in local currency terms, which translated to a +0.8% return in Sterling terms as the Pound strengthened against all major currencies, particularly the US Dollar. The same risk-on appetite was observed in Fixed Income markets, as High Yield bonds rallied +0.6% while global treasury bonds retreated -0.6%. Emerging Market Local Currency Debt rallied +1.0%.
The main event on which the markets were focused last week was the virtual meeting of the Federal Reserve, which is typically held in Jackson Hole in scenic Wyoming. At the meeting, Chairman Powell announced a reasonably significant change to how the US central bank would implement monetary policy. This involved taking a more lenient approach to inflation, whereby the Fed would target an “average” inflation rate of 2%; rather than a target of 2%. This of course means that if the Fed undershoots 2% in one period, it can catch up via letting the economy run hot in a subsequent period.
Government Bonds initially sold off on the news, as inflation is the nemesis of a fixed rate of return – however, bonds soon rallied back. This could be symptomatic of a market that has lost faith in the ability of global central banks to research their objectives. If inflation is the desired outcome and monetary policy is proving ineffective, central banks may be implored to ‘stop digging’, and take a back seat to fiscal stimulus driven by government spending.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 01st September 2020.
The World In A Week - Summer Lull
Equity markets were buoyant last week, led by the US which hit yet another new high returning to pre-crisis levels; the only exception was the FTSE All-Share which continues to struggle and remains in negative territory at Friday’s close and year to date.
Inflation data in the US and Europe accelerated in July. In the US, auto and apparel costs pushed data up by 0.6% from the previous month, double economists’ estimates of 0.3% and a 4-month high of 1.6% on an annualised basis. In Europe, the move was not so marked, moving from 0.3% in June to 0.4% in July, driven by non-energy industrial goods and services, food, alcohol and tobacco. This tick up can be attributed to a rebound in demand, from the depths of the pandemic-induced lockdowns earlier this year and suggests that inflation is closer than thought to returning to the pre-crisis pace.
PMI data in Europe for July showed a sharp decline from 54.2 to 51, as tougher pandemic restrictions and the UK’s decision to increase the number of countries which require mandatory quarantine on returning to the UK came into force across Europe. Most indicators remained in expansionary territory, although services were hit particularly hard. In addition to Eurozone data, country-level data for France and Germany was also released and showed a fall from 52.4 to 49 and 57.3 to 51.9, respectively.
Despite bourses trending higher, the recovery appears to be slowing, although hopes for a vaccine have provided periodic support.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 24th August 2020.
The World In A Week - Record Breakers
There was a big focus on data for the UK last week, with unemployment and growth numbers being published. The UK unemployment rate for June was reported at 3.9%. This may prove to be artificially low, as UK employment is being supported by the furlough scheme. The coming months will be more insightful for the UK’s unemployment scenario, as the furlough scheme is gradually being phased out.
The UK growth data for the second quarter of 2020 saw GDP drop by -20.4% quarter-on-quarter. This has the dubious honour of breaking the previous record of -2.7% for the first quarter of 1974. It also means the UK is now officially in a recession with two consecutive negative quarters.
All of this was known and actually slightly better than anticipated; the Bank of England had forecast a deterioration of 25%. The main driver of the decline was the Service sector - with Accommodation and Food Services the hardest hit dropping an astonishing -87% quarter-on-quarter. It is little wonder then that the ‘Eat Out to Help Out’ scheme was introduced this month.
Growth is expected to rebound for the third quarter though, but it will be some time before it returns to levels we saw at the end of 2019; the Bank of England’s forecast is not until the end of 2021. Even with a positive outlook for the next three months, there are still considerable risks to the recovery for the UK; a widespread second wave of the virus, consumer sentiment changing to a more cautious approach and the unwinding of the furlough scheme all pose potential threats.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 17th August 2020.
The World In A Week - M&A Is The Way
Mergers and acquisitions activity saw a significant resurgence since the pandemic halted the economy back in March. The ability to complete transactions on a nonface-to-face basis has not proved to be an issue with eight global deals of more than $10bn having been wrapped up in the last six weeks. This includes many predatory buyouts of poorer performing entities but has also included diversification-based deals as companies gear up for an imminent economic downturn. Private equity appears to be the predominant source of funding with TowerBrook Capital Partners recently acquiring Azzurri Group who run the Zizzi and Ask high street restaurant chains. The retail sector has taken a huge hit during the pandemic, with chains unable to pay rent as cash flows have been squeezed. The high street is expected to shrink as we move into a new era of consumer behaviour and spending patterns.
Last Friday saw the Trump administration sanction eleven Chinese and Hong Kong officials in a response to China’s new security law. US companies have also been barred from doing business with major technology Chinese companies and this has derailed the planned trade collaboration between the two largest economies in the world. Both parties have declared their political messages with a recommendation for the de-listing of all Chinese stocks from US markets. Trump has also stated that the US will block China’s WeChat, ultimately eliminating the major forms of social media communication between the nations.
The return to normality has been supported by the ‘Eat Out to Help Out’ scheme which offers a subsidy of up to a maximum of £10 per diner to dine in at restaurants every Monday, Tuesday and Wednesday from the 3rd to 31st August. The first week of the scheme has seen a 19% rise in footfall in UK regional cities with the hope that it can kickstart spending again to support the recovery of the hospitality sector.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 10th August 2020.
The World In A Week - Declining Dollar Dominance?
As we write this piece on the first working day of August, we thought we would take the opportunity to reflect on the month of July. Broadly speaking it was a mixed month, High Yield bonds posted very healthy returns of +3.6%, while their high-quality equivalents returned +1.0%. Equities were more mixed in Pound Sterling terms, with the FTSE All Share down -3.6%, while global equities, as measured by MSCI ACWI, were down marginally (-0.9%).
Perhaps the most substantive move of the month was in the currency markets. The US Dollar had its worst monthly performance since September 2010 – falling -4.4% against a basket of the USA’s six largest trading partners over the course of July. The Dollar had acted as a safe haven in the depth of the coronavirus selloff in February and March, and the US Equity market also proved resilient relative to global peers.
A number of factors are now leading investors to question the supremacy of the almighty Dollar as the world’s reserve currency. First has been the US’s very poor showing in how it has handled the spread of the coronavirus crisis as cases continue to rise in many states. Real interest rates in the US have also converged with the rest of the developed world and are now negative. In addition, the USD has a degree of political risk in the upcoming November election. All of these factors have seen other major currencies surge vs the Dollar in July, and we have seen gold rally to an all-time high.
The potential for a substantial weakening in the US Dollar is something we had thought was possible for over a year, as a result, we are well-positioned to benefit via our holdings of Local Currency Emerging Market Debt in the higher-risk portfolios.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 3 August 2020.
The World In A Week - Interim Update
The Federal Reserve concluded its two-day meeting and confirmed, as we fully expected, that the rehabilitation of the US economy will depend largely on the course of the COVID-19 virus. The ongoing health crisis will undoubtedly weigh heavily on economic activity, employment, and inflation during the short term.
Jerome Powell, the Chair of the Federal Reserve, verified that the Central Bank is using its full range of tools to support the economy during this challenging time. He also reiterated their commitment to maintaining the Federal funds’ rates at zero. Basically, the Fed is doing all that it can and the main tool that needs to be used now is fiscal stimulus.
Fiscal stimulus matters because it can directly influence consumers’ incomes, which is why US politicians need to come to an agreement around the emergency unemployment benefit that has just two days left before expiring. There is wide disagreement between Republicans and Democrats on what form the fifth fiscal stimulus package should take. What is clear though is a botched package could seriously dent any economic recovery, while a sensible compromise could boost a hesitant rebound.
One thing they have agreed, is for another round of cheques worth up to $1,200 to all US individuals, with the hope that this will generate a spike in consumer spending. However, consumers facing a significant drop in their unemployment benefits may choose to save the money rather than spend.