News

Please see below the latest market update article from Brewin Dolphin – received 04/08/2020.

Brewin Dolphin – Markets in a Minute – Equity markets mixed, gold and silver continue to rise

Global share markets were mixed last week, with China outperforming the rest of the world as its economic recovery continues. US indices were flat or marginally up thanks to some extraordinary results from the US tech giants, but equities in the UK and Europe have fallen on poor economic data, rising coronavirus cases and a “wall of worry” about the economic outlook later this year.

Bond yields broadly fell again with yields on US Treasuries hitting record lows, while gold and silver prices rose as investors looked for safe havens. Meanwhile, the US dollar suffered its worst month in 10 years against a basket of currencies.

A positive start to the week…

Markets started the new week with a rebound. Equities in the UK, Europe, US and Asia all pushed higher on Monday, as surveys of manufacturing businesses in the US, UK and Europe suggested that factory activity was increasing. The FTSE100 saw the largest daily increase, jumping by 2.3% on Monday, pushing back up through the 6,000 level to 6,032.85.

Virus developments

New cases appear to be slowing in the US, suggesting the pausing of re-openings and the mandated use of masks in many states may be working. It also saw a reduction in hospitalisations, and the fatality rate is now around 1.5% compared to 7% in April. This is probably because more young people are getting the virus while older people are taking more care to protect themselves, while treatments are also improving. All this helps reduce the chance of another national lockdown.

Unfortunately, after a period of falling cases, Europe is now seeing infection rates rise again, driven heavily, but not exclusively, by Spain (about 50%).

Japan has also seen a big rise and even China has seen a pick-up in new cases, albeit from a very low base. It demonstrates just how hard the virus is to completely suppress, but China is an example of how an economy can recover while managing localised outbreaks.

The news of two revolutionary new coronavirus testing kits that give results in 90 minutes will no doubt be a great help in containment efforts. Previous tests took two days.

What’s eating the dollar?

Even after falling so far last month, we suspect the trend remains weaker for the dollar. Despite the recent reduction in coronavirus cases it still seems as if Europe will do a better job of containment than the US, with governments generally prepared to impose local lockdown measures before things get out of hand.

Both regions have produced stimulus packages that are supporting growth, primarily consumption at the moment, which you might expect to be positive for the dollar. But it comes at the cost of an increased budget deficit (where government spending exceeds its revenues), and this will likely result in an increased current account deficit (where the value of its imports exceed the value of its exports). Both of these can weigh on the dollar.

Time is tight for US stimulus deal

The extra $600-a-week in unemployment payments announced as part of the original stimulus package in March, came to an end last week. Politicians are still deadlocked in negotiations about the details of a new stimulus bill, with Republicans wanting to cut the payments to $200 a week and Democrats wanting to keep payments unchanged.

All this while the employment crisis burns (as evidenced by another week of higher jobless claims). Even given the tight timeframe, with the Senate due to go into summer recess on 7 August, we still think a deal will be passed, even if it means having to push back the summer break. The alternative would be delaying until September which is an outcome that both parties would be keen to avoid.

Corporate news

Earnings season in the US has been producing the right kind of headlines. Around halfway through and nearly 85% of companies have beaten EPS estimates, ahead of the more usual 80%. Exactly two thirds of companies have reported better-than-expected sales levels. That is an improvement on most other years, when an average of 50% of firms exceeded sales expectations.

Last week saw updates from some of the big tech names. After announcing stellar results as beneficiaries of the new work and play at home environment, the combined market value of Facebook, Amazon, Apple and Google soared by $230bn in after-hours trading on Thursday, taking their total value to more than £5trn for the first time and lifting the S&P500 into positive territory for the week.

All that glitters…

The best play on a weaker dollar has been precious metals, and while the focus has centred on the gold price hitting record highs, silver has actually been the better performer of late, rising nearly 25% in July alone. We still think there is more upside because silver’s rebound has not yet fully reversed the historic divergence in the ratio between the price of the two metals, plus silver has additional demand for industrial uses.

Another good overview of the markets from Brewin Dolphin. Although markets started with a rebound this week, we are still experiencing high levels of volatility.

Please continue to check back for our latest blog posts and updates.

Charlotte Ennis

05/08/2020

Please see article below from AJ Bell Youinvest received 30/07/2020

The growth of China’s consumer economy

The country could stoke domestic demand to become more self-reliant

Thursday 30 Jul 2020 Author: Tom Sieber

In the last decade or more the Chinese economy has undergone a significant transition as it moves away from an infrastructure-driven and export-reliant economy to one fired by domestic consumption.

This change can be tracked by looking at how the country’s current account surplus has moved to a deficit. Broadly speaking a current account surplus means an economy is exporting a greater value of goods and services than it is importing.

Having peaked in 2008 when China truly lived up to its reputation as ‘The World’s Factory’ the surplus has declined significantly.

There are several factors underpinning the growth of the consumer economy, one being a natural offshoot of the maturation of the Chinese economy. A larger Chinese middle class is more likely to have disposable income to spend on products and services at home.

In the short term at least, exports have been hit by the coronavirus crisis as demand has dried up and trade routes have been affected by lockdown restrictions. Chinese tourists who might have taken their renminbi overseas are also shopping domestically instead.

There are signs China wants to move further in this direction as it looks to become more self-reliant. This may reflect pressure on the country and its businesses from other countries concerned about its growing global influence, and about its recent actions in Hong Kong and in the immediate aftermath of the Covid-19 outbreak.

A report by the Chinese Academy of Social Sciences, a think tank closely affiliated to the state, suggests the next five-year policy plan – due for 2021 – should prioritise home-grown innovation and look to tap into a substantial domestic market.

Please continue to check back for our latest blog posts and updates.

Charlotte Ennis

31/07/2020

Please see below the latest market update article from Brewin Dolphin – received 28/07/2020.

Markets in a Minute: Equity markets lose ground as investors seek safe havens 28 . 07 . 2020

Global share markets struggled to hold on to recent gains over the past week as tensions between the US and China escalated, with tit-for-tat consulate closures in Houston and Chengdu. There were also signs that the rebound in the US economy was waning, with initial jobless claims rising for the first time since March. Increasing coronavirus cases in numerous countries added to worries.

Bond yields fell, the gold price hit a record high as investors looked for safe havens and the US dollar fell to its lowest level for two years when compared to a basket of other currencies.

Last week’s markets performance*

• FTSE100: -2.64%
• Dow Jones: -0.75%
• S&P500: -0.3%
• Dax: -0.63%
• Hang Seng: -1.5%
• Shanghai Composite: -0.54%

*Data for the week to close of business on Friday 24 July.

Holiday chaos

Markets started the week cautiously yesterday. Asian shares were mixed, the US rose, but equities in the UK and Europe lost ground. The FTSE100 closed down by 0.3%, and the Eurostoxx600 index also fell by 0.3%. Travel stocks shouldered the worst of the losses on the back of the government decision to impose a two-week quarantine on travellers returning from Spain. It had a knock-on effect as many travellers to other destinations cancelled their holidays fearing a similar last-minute change to the rules. But the UK was not alone; France also warned against citizens travelling to Catalonia, and said those returning from a list of 16 countries outside the EU would be subject to mandatory testing at the border on arrival.

Dollar woes

We have been calling a decline in the dollar for some time now and it has fallen against virtually everything over the past week, especially when compared to the euro which is continuing its strong run. Recent data suggests that the European economy is performing better than the US, and given European interest rates are negative, while they are still (just) in positive territory in America, investors perceive US rates have further to fall, putting downwards pressure on the dollar. The euro gained 0.95c yesterday to $1.17.81, above the $1.17 level for the first time since late 2018. The pound also strengthened 0.7% to $1.29.01.

Dollar exchange rates

Virus news

While global case numbers continue to rise, driven largely by emerging economies, there have been renewed spikes in numerous locations including Japan, Hong Kong, France, Canada, Germany and, of course, Spain. However, it is the progress of the virus and policy response in the US that will have the greatest impact on the global economy.

In that sense at least, there were hopeful signs in the US that new infections were peaking, and there are several factors which suggest that the economic impact of the virus in the coming months won’t be as severe as it has been in the past.

Firstly, the rise in cases is partly explained by the increase in testing. That means the headline case number is less worrying and it also means more people who know they are infected can self-isolate and be treated.

Hospitalisation rates have been lower and are falling. That means more minor cases are being identified and people are self-isolating, and it also suggests that high-risk groups are isolating to keep out of harm’s way.  Additionally, those who are hospitalised are getting better faster. Treatments have improved and the ICU mortality rate has declined. All these factors suggest that repeating the total lockdowns seen earlier in the year is not a viable option.  

Stimulus deadlock

While the EU eventually approved its €750bn recovery package after a marathon summit early last week, US Congress is still debating how to proceed. The Democrats approved a bill for $3trn in additional stimulus two months ago, including a proposal to keep paying the $600-a-week in extra unemployment benefits until the end of the year. The payments are due to expire this week.

Yesterday, however, the Republican-controlled Senate unveiled a $1trn plan that involves cutting the $600-a-week benefits to $200 in September, then setting unemployment benefits at a maximum of 70% of the claimants’ most recent salary. The idea is to make sure that nobody earns more for staying at home than they would going to work.

However, the Democrats said the plan fell far short of what was needed to ensure the US recovery stayed on track, and said the cut to benefits was a “slap in the face” for the 30m Americans relying on unemployment payments. The two parties are now negotiating a compromise.

Road to recovery

While recent economic data has generally been better than expected, that trend has been less pronounced in the UK than other regions. Although the initial purchasing managers’ indices for July show activity is improving, the data is only relative to the previous month and so does not really tell us a great deal other than things aren’t quite as bad as they were in June.

While the direction of travel is welcome, there’s every reason to expect the UK recovery to be slow as the job retention scheme is unwound over the coming months.

We compared the Office of Budgetary Responsibility (OBR) and US Congressional Budget Office (CBO) forecasts for UK and US GDP respectively. They anticipated that the US will reach its pre-COVID level of activity in 2021, a year ahead of the UK.  

Brexit and trade deals

The current state of Brexit negotiations also implies a slower trajectory for the UK. Whilst opinions differ, the market views any frictions between the UK and EU as inhibiting UK economic activity. Last week the Telegraph reported that government insiders are resigned to the fact that they may be trading with the EU on WTO terms in 2021.  The FT reported that the government are equally resigned to the fact that a trade deal with the US will not happen ahead of the US elections this year (and therefore will be pushed back to the next congressional session starting in the new year).
The first of these stories is presumably part of the bargaining strategy and doesn’t necessarily change our view that a thin trade deal can be achieved later in the year, but will likely still mean some economic disruption. The second weakens the UK hand in further negotiations but is not a surprise given that the US has typically been a tough partner for smaller countries to negotiate with. Both scenarios present some headwinds which could add to volatility.

A good overview of the current market situation from Brewin Dolphin. High levels of volatility continue in the markets and the impacts of the virus are still being felt globally.

Please continue to check back for our latest blog posts and updates.

Charlotte Ennis

29/07/2020