The World In A Week - Biden His Time
It looks like it is finally over, as it would appear that the Democrats, with Joe Biden, have taken control of the US Presidency. The control of the Senate, however, is still in question, as it looks as though the Republicans may have retained control. The blue wave that was predicted by the polls may not have come in, but it is clear the US is extremely politically polarised.
What does that mean for markets? We would consider Trump’s strategy of continued court challenges to have little or no effect on stock markets. Immediate concerns though will be the content of the next fiscal stimulus package. With the Democrats controlling Congress and the Republicans controlling the Senate, how diluted will the economic rescue package be? Longer- term concerns will be the rising polarisation and prejudice, which could risk damaging US growth and hamper plans on achieving a sustainable fiscal position. Monetary stimulus was also delayed, with the US Federal Reserve deciding to maintain course against a background of political uncertainty.
In the UK though, monetary stimulus was increased. Against the backdrop of the second national lockdown, the Bank of England’s Monetary Policy Committee met to agree to keep interest rates on hold at the historically low level of 0.1%, and not stray into negative territory. However, it did decide to increase its quantitative easing programme by a further £150 billion, to provide stimulus during this second round of lockdowns. This was joined by the Chancellor, Rishi Sunak, announcing that the government’s furlough scheme would be extended beyond the lockdown period to March 2021.
With the UK facing rising COVID-19 cases initiating a second period of lockdown, and an uncertain Brexit, it was essential that both monetary and fiscal stimulus responses were strong and co-ordinated.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 9th November 2020.
The World In A Week - The Final Countdown
The weekend saw Boris Johnson announce a four-week national lockdown to try and curb the number of hospital admissions and avoid the NHS becoming overwhelmed. The timing of the national lockdown has been questionable since the UK has been a late mover, with most other major European countries already in a lockdown phase again. All non-essential shops and leisure activities will be forced to close but the decision to keep schools, colleges, and universities open has faced significant backlash, although closure would cause long-term harm for children and students’ education. The Cabinet Office minister, Michael Gove admitted that the national lockdown could be extended beyond its four-week period if the rate of transmission does not fall sufficiently.
Since this is the second national lockdown, we already know what to expect and what is to come, so the transition is expected to be much smoother. The job retention scheme has been extended during this month-long lockdown with employees able to receive 80% of their wage based on their current operating hours, however businesses are still facing rent and rates pressures.
Elsewhere, the US Presidential Election is entering its final stage, as Americans vote tomorrow. According to the latest polls, Democratic candidate, Joe Biden is in the driving seat over the incumbent Donald Trump. Ninety-five million Americans have already voted via post, which equates to 70% of the voting turnout in 2016, hence a much higher voting turnout is expected for this election and polls might not be as accurate. This has been the most expensive presidential election on record, with spending already at $14 billion.
The ongoing Brexit negotiations also enter their terminal phase with the rights to Britain’s fishing waters still in dispute. Chief UK negotiator, David Frost has been reluctant to concede the UK fishing territory since this is a significant source of income for domestic fisheries and the UK are justified to demand full jurisdiction on fishing in British waters despite EU pressures.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 2nd November 2020.
The World In A Week - Wave Motion
Markets had a little bit of a wobble last week, with the MSCI All Country World Index of global equities falling by -1.1% in Sterling terms. The best performing markets were in the Emerging Markets and Japan, which posted small positive gains. This was, however, offset by falls in the US and Continental Europe. Within Fixed Income, High Yield Bonds managed to rally despite the wider risk-off mood, while Global Treasuries and Investment Grade Bonds posted losses.
In the forthcoming US Presidential Election, polls have been pointing towards a “Blue Wave” whereby the Democrats would take both the presidency and both houses of Congress. Markets believe this would result in larger stimulus spending, higher inflation and higher interest rates. This has seen a recent pivot towards parts of the market that have been unloved for quite some time, namely Value stocks, Small Cap stocks and away from US Treasury Bonds. The persistent outperformance of US Large Cap Tech stocks may end following a Biden victory, as the Democrats are likely to call for increased taxation and regulation.
The other wave that markets are currently preoccupied with is, of course, the second wave of the Coronavirus pandemic which is sweeping Europe. France is facing up to 100,000 cases per day, and Italy and Spain announced sweeping additional restrictions on their populations on Sunday, in an attempt to get on top of the virus’s spread. These developments, among many others, affirm our belief that Continental European shares are relatively unattractive versus those in Japan and the Emerging Markets.
In better news, there have been positive developments in both the Oxford/AstraZeneca vaccine trial (which produced a robust immune response in elderly people) and the Pfizer vaccine (which is progressing for emergency approval from the FDA in the US). These developments could have big market impacts, and we feel we are well positioned for such opportunities. When navigating across a sea of choppy waves, investors would do well to look to the far-off horizon for stability… and try not to get seasick.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 26th October 2020.
The World In A Week - A Tiered Wall Of Worry
COVID-19 weighed on sentiment, with cases globally increasing throughout the week. In Europe, figures jumped by more than 625,000, which meant new restrictions were implemented in the UK, France, Germany, Spain and the Netherlands. A worrying trend was also observed in Germany and Italy, who had previously managed to avoid a second wave of contaminations, saw an acceleration in such cases. The US also did not go unscathed, figures spiked to their highest level since July, with a recording of 350,000 in weekly cases.
As a result of a jump in cases, we expect fourth quarter growth will be subdued. Despite this, the International Monetary Fund (IMF) has revised its global growth forecasts higher for 2020, noting a better-than-expected rebound in post-lockdown activity. However, while growth has been revised upwards for 2020, the IMF has cut their outlook for 2021 citing the impact of persistent and reinforced social distancing measures.
Brexit negotiations continue to show little sign of progress, as neither the UK nor the EU is prepared to compromise. Planned discussions for the week ahead have been downgraded to a phone call, as No. 10 felt there was ‘no point’ in continuing if the EU is not prepared to discuss detailed legal text of a partnership. Fishing rights and state help for businesses is the latest bone of contention and has caused negotiations to falter. Moody’s has downgraded the UK’s credit status on the back of falling economic strength, as a direct result of the coronavirus pandemic and uncertainty over Brexit. We expect Brexit negotiations to feature heavily in the week ahead.
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 19th October 2020.
The World In A Week - Tackling The Inequality
Much of the talk in recent days has been about a proposed three-tier lockdown system which should provide greater clarity and outline the risk level of various regions. The Chancellor, Rishi Sunak, will also present his proposals for a regional job protection scheme to curb the economic impact of the virus. We have seen small businesses shut, then reopen their doors and now may be forced to close again, a truly devastating blow to the economic recovery.
Last week, the FTSE All Share was up 2.35% on the back of the encouraging economic news that the UK grew by 2.1% during August. This was below market expectations since August featured the “Eat out to help out” scheme which was embraced countrywide.
It was an encouraging week across the remaining equity markets, as the recovery continues for much of the global economies. We have seen a very fast recovery in the US with significant fiscal stimulus being the major catalyst for its modest performance. However, in much less developed countries, the economic impact has been much more significant, and the recovery is expected to take much longer. The IMF and the World Bank are set to meet in the coming week, with the major discussion being the large inequality in economic recovery seen globally.
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 12th October 2020.
The World In A Week - Focus On Floating
Last week was ultimately centred around the US Presidential Election. It started with an article on the lack of tax that President Donald Trump has paid and finished with the Commander-in-Chief of the US Armed Forces testing positive for COVID-19.
In the middle of this we had our first televised debate between Donald Trump and Joe Biden. While the debates are important to see how the candidates handle each other, it is the spin put on afterwards that really matters. Not to committed voters though, as they will not change their views; the spin is purely directed at the undecided voters.
Voters in the US are extremely polarised; you are either staunch Democrat or staunch Republican. Therefore, the debates and stories are targeted towards the floating voters, which is estimated to be around 10% of the voting population. So, do debates and stories matter? It does when the most recent US presidential elections were won on such narrow margins, so albeit small the floating vote is still large enough to affect the outcome of the race to the White House.
With the vote less than a month away, both candidates will be looking to gain as much airtime as possible. This is now complicated with President Trump having contracted COVID-19, putting future televised debates in jeopardy.
It is not just the President who has tested positive; many Republican Senators have also caught COVID-19, meaning the Senate will not be able to vote on any proposals for the next two weeks. This will delay the proposed fiscal stimulus package, which needs to be voted upon in the Senate, and could result in fear creeping back into the economy.
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 5 October 2020.
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.