Please see the below investment bulletin received by Brooks Macdonald today (16/10/2020):
What has happened
Markets have been largely willing to shrug off the increased in coronavirus cases in Europe but a series of tightening restrictions across Europe shook investor confidence yesterday. This had led to contagion in US indices however the early losses there were largely recouped by the end of the session.
European cases go the wrong way as restrictions tighten
Italy has been relatively resilient in the face of the second wave, but it also reported close to 9,000 cases yesterday as it joins the European trend. In recent days we have seen the UK moving London and several other areas under Tier 2 restrictions, France imposing a curfew and increasing restrictions in Germany. The key question for markets is whether governments in Europe will continue with the current policy of squeezing social interactions and hospitality but keeping the majority of the economy and schools open. Encouragingly, Reuters have reported that the NHS is in talks with relevant bodies about the mobilisation of a vaccine programme as early as December. If a vaccine allows investors to focus on a ‘beginning of the end’ of COVID restrictions, they will be increasingly comfortable to look through the next 3/6 months of restrictions. This could also increase the political palatability of tougher measures now if light can be seen at the end of the tunnel.
What next for Brexit?
EU leaders agreed at the EU Council meeting to continue negotiations with the UK but the narrative was very much that the UK’s position needs to come towards the EU rather than the other way around. The UK’s chief negotiator Frost said he was ‘surprised’ and ‘disappointed’ by this and we will hear from UK PM Johnson later today with the UK’s view. Sterling has faltered a bit on this news as it makes continued negotiations less likely, on the margin, than a day ago when reports were pointing to an extension into November.
What does Brooks Macdonald think
US fiscal stimulus remains a hot topic in the market but we have avoided discussing this too much today as regardless of whether a given day looks brighter or darker for stimulus, we retain low expectations that anything will happen before November. Should Biden win the White House but not take the Senate, this may prove challenging for risk appetite so we expect investors to react to shifts in the Senate polling odds more than day to day fiscal rhetoric.
Source: Bloomberg as at 16/10/20
The markets have been volatile this week as Covid-19 restrictions have been tightened in the UK. With rising cases and uncertainty about further restrictions and lockdowns, along with the impending US Election. This volatility is likely to continue.
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