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.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 30 July 2020.
The World In A Week – The Pain In Spain
The week started buoyantly with markets in a risk-on mood following positive news about vaccine trials and governments ordering doses of the vaccine in their tens of millions. However, this positive outlook slowly deteriorated throughout the week, as concerns over the US economic recovery became the main anxiety for markets.
With critical unemployment benefits due to expire at the end of the week and rising COVID-19 cases hitting 4 million, the US is looking less like the poster child for tackling the virus crisis. A rare press conference from President Trump admitting that things would get worse before they got better, highlighted this decrease in sentiment. To add to the woes for Donald Trump, we saw US/China tensions increase with retaliatory consulate closings.
Against this backdrop the majority of global equity markets slipped lower, with value outperforming growth for the second consecutive week. Meanwhile, safe haven assets such as US Treasuries and gold, edged higher.
In the UK, we were hit with the sudden exclusion of Spain from the travel corridor exemption list, with France also advising against travelling to parts of the country. Britons who have already travelled for their summer holidays will now be required to self-isolate, with a 14-day quarantine immediately imposed by the Government.
This has seen shares falling for airline and tourism companies, which have already been hit extremely hard during this unprecedented crisis. The uncertainty and confusion will undoubtedly be damaging for businesses and disappointing for those looking forward to a well-deserved break.
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 27 July 2020.
The World In A Week - Interim Update
President Trump has finally confirmed that things will get worse before they get better, when he delivered an update on the coronavirus in the US. This is not new news, but it may stoke the fire of fear and, in turn, that could mean a negative economic response. That is why there was a meeting between the House of Representatives’ Speaker and the Treasury Secretary, to discuss the next fiscal stimulus plan.
This will be the fifth in the series of economic stimulus packages and it comes with a smidgen of urgency behind it. The additional unemployment benefit payments in the US are due to expire at the end of July. The fear is that the economy would not react well to a cessation of these important payments.
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 23 July 2020.
The World In A Week - Simmering Tensions
Markets broadly remained in positive territory last week on the back of encouraging reports from vaccine trials. Data for the second quarter of this year demonstrated that the global contraction has been less severe than first feared. China, who was the first to reopen its economy, recovered faster than expected in June compared to the same period last year, with exports rising by 0.5% and imports by 2.7%.
This positive news was offset by political tensions between the US and China and the UK and China. Trade wars between the US and China continue to simmer in the background and the UK’s decision to ban all Huawei equipment from the UK’s 5G networks has also caused a backlash, with the media citing pressure from the US as the reason for the UK’s proposed ban.
Away from trade tensions, global virus deaths continue to climb with the US topping the list with 140,000 deaths. Some 30 States in the US have experienced an increase in cases in the last week, which has led to regional governors rethinking lockdown plans and, in some cases, backtracking on plans to ease restrictions.
The European Central Bank (ECB) met last week and left rates unchanged. European leaders’ marathon discussion, now in its fourth day, over the €750bn European Recovery Fund, remains in deadlock. There is a clear divide between the more frugal countries and those that are likely to be the biggest recipient of emergency funds. Discussions continue today.
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 20th July 2020.
The World In A Week – Interim Update
We have had a series of data releases this week ranging from inflation, growth, industrial production, unemployment and retail sales. There was very little new news to be gleaned from the numbers; the consensus range was extremely wide, meaning there were no shocks to report.
The month certainly feels like a dead rubber, as the markets look towards the data releases in August, which will give us the numbers for the whole of the second quarter. Perhaps this will give us an indication of how effective the loosening in lockdown restrictions has been. It is expected that retails sales in the US will continue to grow, as the savings acquired in lockdown are treated like a windfall to consumers.