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Vaccine Update

Please see the below updates from AJ Bell regarding this week’s news on the Pfizer vaccine:

Is the vaccine news a game-changer or just a good start?

There are high expectations for Pfizer and BioNTech to win with their Covid-19 vaccine following the latest trial update which triggered a global stock market rally and installed hope in people around the world.

The two companies will collate data until the third week of November before submitting to the regulators for approval. Safety is very important given the scale of deployment with potentially billions of perfectly healthy people being given the vaccine.

Assuming more data confirms the 90% effectiveness of the vaccine there are other considerations as more news arrives over the coming weeks.

The first big question is for how long the vaccine will provide immunity because there is no guarantee that vaccine-induced immunity will be any better than that afforded by infection.

Second, the science behind this vaccine is known as mRNA and it has never been commercialised which means no one knows for sure how to manufacture it at scale. The technology involves injecting a blueprint of the vaccine into the cells of the body so that they can make copies of the vaccine.

The vaccine needs a cold storage supply-chain because it has to be stored at minus 80 degrees centigrade. The lack of available cold refrigeration infrastructure, especially in poorer areas of the globe, may hinder distribution of the vaccine.

According to Shore Capital it is unclear at this point whether the study included patients with severe symptoms which is very important because if it didn’t it would mean the vaccine can so far only make mild cases more mild and not prevent hospitalisations.

Pfizer has targeted production of around 50 million doses for 2020 and 1.3 billion next year.  Various countries have already secured agreements with Pfizer including the UK with 30 million doses. Shore Capital points out that because two doses are required and assuming wastage this would only cover around 12 million patients. It takes 28 days from the first injection to attain immunity.

The broker notes that the world will need more than one vaccine because a range of sub-groups are likely to respond differently to vaccines. Mark Brewer, analyst at FinnCap, argues that global herd immunity requires 60% to 70% of the population to become immune which given the huge numbers involved could take years to achieve.

In short, don’t expect the economy to open up quickly even if a vaccine is approved.

Two late-stage trials with results expected in the next few weeks are University of Oxford’s and AstraZeneca’s (AZN) study of compound AZD1222 and Moderna’s vaccine candidate mRNA-1273.

Both these studies include patients with severe Covid-19 symptoms and so a positive result may be more meaningful in terms of reducing hospitalisations.

Where we stand after markets’ vaccine boost

he near-5% gain for the FTSE 100 on 9 November reflected news of extremely positive results for the vaccine being developed by Pfizer and BioNTech.

This was the biggest gain since the index surged 9.1% on 24 March when investors reacted to a rescue mission by central banks during the wild trading seen at the outset of the global pandemic. Even this, more modest, November movement ranks among the 10 highest one-day percentage gains for the index.

In the spring there was considerable uncertainty on the path out of the coronavirus crisis and just how damaging it might be. Now the situation on both these variables is a little clearer and that helps explain why market rallied so strongly. Although it is not quite true to say the market has come full circle.

Has the ftse fully recovered?

As we write the FTSE 100 is still 15% below its pre-Covid levels – we take 20 February as being when investors really began to price in a material impact from the pandemic.

In contrast, the S&P 500 which, thanks to a combination of the US presidential outcome and the vaccine news, broke new record highs this week.

The gains across the Atlantic were less substantial than those enjoyed by the FTSE 100 and that hints at the changes in stock market leadership we are seeing in the wake of Pfizer’s big announcement.

Losers become winners and vice versa

While Wall Street is dominated by the big technology companies, the UK market has plenty of the old-world economy in its ranks, many of which have seen their valuations smashed on the rocks of the Covid crisis.

These beaten down ‘value’ stocks were suddenly in fashion and we saw some quite spectacular moves, while tech, which sits very much in the ‘growth’ category, and traditional safe havens like government bonds and gold were sold off.

Tech has been one of the few places to find earnings growth in 2020 and so investors have been happy to pay high prices in this area. Many investors now look to be taking the view that some of the worst-performing stocks this year now have a greater chance of earnings recovery, which means they can find growth at a cheaper price and so tech becomes less appealing as valuations start to become more important.


Travel Rebound

Drilling down to specific sectors, travel was clearly a big winner including British Airways owner International Airlines Group (IAG) which enjoyed intra-day gains of 40%.

Aircraft engine maker Rolls-Royce (RR.) continued the dizzying ascent it has enjoyed since addressing its own financial problems with a recent £2 billion rights issue. Hotels, as well as leisure and hospitality businesses, also soared on hopes they might be able to return to more normal levels of business in the not too distant future.

However, as the graphic shows many stocks remain some way below the levels they were trading at before the pandemic erupted, demonstrating just how far they have fallen in 2020.

Other Sectors Rising

Oil majors BP (BP.) and Royal Dutch Shell (RDSB) were also in demand as oil prices spiked, though again both their share prices and the Brent crude benchmark remain way below pre-Covid levels.

Housebuilders were fired by hopes of an improved economic picture as well as surprisingly punchy guidance from Taylor Wimpey (TW.) that 2021 would be materially ahead of expectations – confidence underpinned by an order book up from £2.7 billion a year earlier to £3 billion. Real estate investment companies, particularly those with exposure to shops and offices, also soared.

Left Behind In The Rally

Perceived lockdown winners like Just Eat Takeaway (JET) and DIY-firm Kingfisher (KGF) were losers on the day. The biggest faller in the FTSE 100 was online groceries firm Ocado (OCDO) which fell 16.1% to £22.83.

Consumer goods giant Reckitt Benckiser (RB.), which had done well earlier this year after receiving a boost from demand for health and hygiene products, also gave up some of its recent gains.

What Happens Next?

Let’s assume the most bullish assumptions are true and there will be a return to some normality by the spring. With very loose monetary policy in play and a possible spending splurge by those consumers which still enjoy a disposable income, there is the possibility of inflation increasing fairly rapidly.

This might see central banks execute a handbrake turn as they look to gain control of rising prices and begin withdrawing stimulus or even increasing ultra-low rates. In this article we talk about the investments which could do well if inflation returns.

Conversely, if there are unexpected delays in the development and distribution of the Pfizer vaccine and others potential vaccines, will investors be patient, or will they look to sell Covid-impaired names once more?

One must also consider the unresolved risks which persist around Brexit and the transfer of power in the US.

This week’s vaccine news is positive news, however it’s by no means the end of the road, its just a step in the right direction.

We may see further drops in the market and setbacks in terms of the Pandemic, but this is a very good start.

Stay posted for further market updates and blog content from us.

Andrew Lloyd

13/11/2020

Team No Comments

Vulnerable Clients

The FCA have always had a focus on Vulnerable Clients – in particular, how firms manage and deal with Vulnerable Clients.

Following Covid-19, this focus was heightened given the significant impact of Covid-19 on people’s health (both physical and mental) and finances (stock market drops or possible furlough/job loss).

A key element of the FCA’s focus is on the importance of protecting vulnerable clients at this time and firms should expect to receive continued and increased scrutiny on what they are doing to identify and deliver good outcomes for their vulnerable consumers.

What is a ‘Vulnerable Client’?

FCA Definition: A vulnerable person is someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.

In 2018 the FCA Estimated that 50% of adults display 1 or more characteristics that show potential vulnerability. This means that 24m adults in the UK showed signs of vulnerability.

Following COVID-19, it is now estimated that 1 in every 6 adults show signs of vulnerability.

What are the 4 key drivers?

Given the broad scope of the drivers, it’s likely that most people will experience one or more of these drivers at some point in their life.

How do we support Vulnerable Clients?

We have implemented a Vulnerable Client Policy which details how we spot the signs of vulnerability and how we manage and support our client’s needs.

In addition to our policy, we regularly provide training to all staff regarding Vulnerable Clients to highlight our requirements as a firm, the drivers and impact of vulnerability and how to spot and manage vulnerability.

We have a Vulnerable Client Champion (that’s me!), to help make sure that we support clients in the best possible ways and to constantly review and challenge our own internal processes to make sure we are strong in our focus in delivering the right outcomes.

We make it our goal to make sure the fair treatment of Vulnerable Clients is properly embedded into our culture, policies and processes to make sure that we can provide clients with any additional support needs that may be required which helps us deliver the best outcomes for our clients.

Ensuring that this as embedded into our firm’s culture helps us support our clients during periods of vulnerability which is the time when they need it most.

This year has been challenging in many ways and we have recently reviewed our internal training and policies to ensure that we take the potential impact of Covid-19 in how we help provide the best advice and support for our clients.

As a firm, we don’t just look at helping our Vulnerable Clients as a regulatory issue, we do it because we support our clients at all times, no matter what life may throw at them.

We are all likely to be more vulnerable now following the pandemic and its important to remember, we are all in this together!

Andrew Lloyd

Vulnerable Client Champion

09/11/2020

Team No Comments

Blackfinch Group Monday Market Update

Please see below for the latest Blackfinch Group Monday Market Update received by us today 02/11/2020:

UK COMMENTARY

  • Infection rates continued to climb, with talk of a second national lockdown becoming more prevalent towards the end of the week
  • According to the Confederation of British Industry, retail sales fell in the year to October. The group surveyed 116 firms, of which 54 were retailers, and highlighted a loss of momentum from September
  • The Bank of England (BoE) entered consultation with UK banks about the potential for allowing them to resume paying dividends
  • Data from The British Retail Consortium showed that prices in UK shops fell by 1.2% in October, after falling 3.2% in September. Prices for non-food items also fell 2.7% month on month
  • Net mortgage borrowing increased to £4.8 bn in September, from £3.0 bn in August, according to the Bank of England. Mortgage approvals for house purchases reached their highest level since September 2007, at 91,500

US COMMENTARY

  • House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin continued to be unable to reach an agreement on a stimulus package
  • Latest gross domestic product (GDP) figures showed that the US economy grew by 33.1% in the third quarter, following a fall of 31.4% in the second quarter. Expectations had been for an increase of 32%
  • In the week to 24th October, new jobless claims fell to 751,000, better than forecasts of 770,000
  • Daily new infection cases reached record highs, with over 100,000 infections reported on 30th October
  • New home sales fell short of consensus, with 959,000 sales reported in September, below expectations for 1.03 bn homes to have been built

EUROPE COMMENTARY

  • France, Spain, Germany and Ireland all imposed further restrictions on movement in a bid to slow rising infection rates
  • The European Central Bank left rates unchanged. Head of the bank Christine Lagarde suggested there was ‘little doubt’ that the bank would act in December to loosen monetary policy further
  • GDP across the region increased by 12.7% in the third quarter, ahead of the 9.4% growth expected. France, Spain, Germany and Italy all posted forecast-beating figures

ASIA COMMENTARY

  • South Korea GDP grew 1.9% in the third quarter as compared to the previous quarter
  • The Bank of Japan made no changes to its monetary policy settings, as expected. However, it did trim its growth forecasts to reflect sluggish service spending through the summer months

COVID-19 COMMENTARY

  • The UK’s Medicines and Healthcare Products Regulatory Agency announced that it has started accelerated reviews of the vaccines in development by both Astrazeneca and Pfizer. This is in the hope of enabling the UK to approve the first potential jab as quickly as possible

These articles provide concise well-informed views that cover the whole of the market and are useful to maintain your up to date view of the markets globally.

Please keep reading our blogs regularly to give yourself a holistic and up to date view of the markets.

Keep safe and well,

Paul Green

02/11/2020

Team No Comments

Brooks McDonald Weekly Market Commentary – Hope for coronavirus vaccines amid rising cases in Europe

Please see below for Brooks McDonald’s weekly market commentary, received late afternoon 26/10/2020:

In Summary

  • As coronavirus cases continue to rise in Europe and the US, fiscal stimulus needs will increase
  • The Oxford vaccine candidate is reported to have led to a strong immune response in elderly patients
  • Central bank season begins with the European Central Bank (ECB) and Bank of Japan meeting this week

As coronavirus cases continue to rise in Europe and the US, fiscal stimulus needs will increase

Over the weekend, the US and many European nations recorded their highest number of daily COVID-19 cases, as the blame game started between House Democrats and the White House over the stimulus impasse. With just over a week to go until the US presidential election, something fairly miraculous would need to occur to get stimulus over the line. US equity futures are trading down to reflect this probability.

The Oxford vaccine candidate is reported to have led to a strong immune response in elderly patients

Momentum remains behind the growing US and European case load. Italy has now approved a new national curfew as the country, which had previously fared well during the second wave, sees a sharp surge in cases. France also set a record high in new cases with the positivity rate of tests also rising to 17%1 . There were some positive vaccine stories over the weekend in relation to two front runners however. The University of Oxford/AstraZeneca candidate is reported to have led to a robust immune response in elderly patients which is critical for an effective vaccine. As the elderly are most at risk of serious illness from COVID-19, and have a weaker immune system than the young, there were concerns that a vaccine would fail to produce an effective immune response. The Oxford vaccine has also seen its trials restart in the US on Friday after being halted last month.

Central bank season begins with the European Central Bank (ECB) and Bank of Japan meeting this week

The ECB are meeting on Thursday, the same day as the Bank of Japan. We expect the ECB to warn of downside risks to the economic outlook as well as inflation. This comes as European coronavirus cases, and subsequent restrictions, have risen significantly since the last meeting. There is likely to be the (now traditional) attempt to hand the responsibility for further accommodation to governments, with the ECB stressing the limits of monetary policy in a negative rate environment. Regardless, we may well see some additional easing before the end of the year, particularly if European fiscal policy disappoints as expected. We are entering central bank season with the ECB and Bank of Ireland this week and the Federal Reserve and Bank of England next week. We are expecting the rhetoric to be very focused on the downside risks to the economy but for central bankers to try to put pressure on further fiscal policy more than promising additional easing. Quantitative easing is very effective at restoring order in financial markets but is less helpful in boosting the real economy. If coronavirus cases continue to escalate, fiscal policy will need to carry the weight of the second wave stimulus.

Articles like these provide an efficient way to receive well-informed views that cover the whole of market and are useful to maintain your up to date view of global market news.

Please keep reading our blogs regularly to give yourself a holistic and up to date view of markets.

Keep safe and well,

Paul Green

27/10/2020

Team No Comments

Blackfinch Group Monday Market Update – 19/10/2020

Please see below for the latest Blackfinch Group Monday Market Update:

UK COMMENTARY

  • Boris Johnson unveiled a three-tier lockdown system to help control the spread of a second wave of infections
  • A lack of progress on a Brexit trade agreement saw Johnson suggest that the country should prepare for a ‘no-deal’ outcome
  • The three months to the end of August saw Britain’s unemployment rate rise to 4.5%, the Office for National Statistics (ONS) said, versus expectations of 4.3%
  • After a record low of 343,000 vacancies in April to June, there has been an estimated quarterly increase to 488,000 vacancies in July to September 2020. Vacancies, however, remain below pre-pandemic levels and are 332,000 less than a year ago.
  • The latest grocery market share figures from Kantar for the four weeks to October 4th show that sales growth rose by 10.6%, which is expected to be a result of the threat of another national lockdown. Shoppers spent an additional £261mln on alcohol as the 10pm curfew came into effect and the Eat Out to Help Out scheme concluded.

ONS data suggested that labour productivity, as measured by output per hour, fell 1.8% year-on-year. Output per worker fell by 21.1%, but it is expected that this is a result of the furlough scheme allowing employers to retain workers even though they are working no hours.

US COMMENTARY

  • The market continues to wait patiently for any news on a further government stimulus package. However some solace can be taken in the fact that no matter who wins the presidential election next month, there will likely be a sizeable fiscal stimulus package announced.
  • Third quarter earnings season started, giving investors much to digest, with the main area of focus being the level of recovery that companies have seen since the depths of the economic fallout from the pandemic
  • First time jobless claims increased to 898,000, the consensus forecast had been for a drop to 825,000. Continuing claims fell from 10.98mln to 10.02mln, a greater fall than had been anticipated by the market.

Retail sales rose 1.9%, well ahead of estimates, although industrial production showed a 0.6% decline in September.

ASIA COMMENTARY

  • On Tuesday 13th, Hong Kong’s stock market was unexpectedly closed as a tropical storm prompted authorities to shutter businesses and close schools

GLOBAL COMMENTARY

  • The International Monetary Fund has upgraded its GDP forecasts for this year. In its latest World Economic Outlook it predicts that global output will fall by 4.4% in 2020, better than the 5.2% slump forecast in June.
  • The largest shift was in the prediction for the US, with GDP seen shrinking by 4.3%, not the 8% previously anticipated
  • Improvements are also seen in the forecasts for Europe, the UK and China, with the fund saying that these changes are due to a “somewhat less dire” slump in the April-June quarter, and a stronger than expected recovery in July-September
  • Emerging markets saw their forecast fall, with a prediction for a 5.7% contraction, worse than the previously suggested 5% slump

The report also suggests that as a result of the pandemic 80-90mln more people will be pushed into extreme poverty globally.

COVID-19 COMMENTARY

  • Johnson & Johnson are forced to pause their COVID-19 vaccine trial due to ‘an unexplained illness in a study participant’

Pfizer and BioNTech have indicated that they could file for emergency use authorisation from the US Food and Drug Administration by late November for their jointly developed vaccine.

These articles provide concise well-informed views that cover the whole of the market and are useful to maintain your up to date view of the markets globally.

Please keep reading our blogs regularly to give yourself a holistic and up to date view of the markets.

Keep safe and well,

Paul Green

19/10/2020

Team No Comments

Brooks McDonald Weekly Market Commentary: US politics set to dominate the week ahead

Please see below for economic and market news from Brooks McDonald’s in-house research team posted 05/10/2020:

In Summary

  • Donald Trump’s hospitalisation rattled markets last week but reports that he is recovering buoy sentiment
  • US Stimulus talks remain ongoing but the two sides are still far apart, raising the risk of further delay
  • Barnier’s talk with EU countries over the UK fisheries policies suggests possible compromise ahead

Donald Trump’s hospitalisation rattled markets last week but reports that he is recovering buoy sentiment

After a weaker Friday, the expectation that Donald Trump may be released from hospital as soon as today has helped markets start the week in positive territory. US politics is certainly the key topic at the moment with investors trying to weigh up the probability of a Biden ‘clean sweep’ but also whether any US stimulus will come prior to the election.

US Stimulus talks remain ongoing, but the two sides are still far apart, raising the risk of further delay

Last week saw a volatile Presidential debate and the hospitalisation of Donald Trump due to COVID-19. It is still too early to say whether the latter has had any impact on polling. The two polls which took place during Friday and Saturday (when the news had broken) suggest Joe Biden’s lead remains intact but further information will be needed. Previously, investors were favouring a Trump re-election given the continuity and more market friendly policies. As the risk of a contested election rises and stimulus is delayed, the preference of markets appears to be shifting towards a comprehensive Joe Biden win. The logic is that a clear win is difficult to legally challenge by Donald Trump but also that it will allow significant fiscal policy to be unveiled. The less market-friendly policies are unlikely to be tabled whilst the US is focusing on the economic recovery and this buys time. Over the weekend, Donald Trump tweeted in support of stimulus, asking lawmakers to ‘work together and get it done’ however the gap between the Democrats and White House still appears to be significant.

Barnier’s talk with EU countries over the UK fisheries policies suggests possible compromise ahead

We have learned not to hold our breath on Brexit trade talks but despite the recent bluster there are signs that both sides are getting closer to a deal. While little concrete information came out of the call between Johnson and von der Leyen on Saturday, both sides stated their commitment to finding an agreement. The Financial Times suggested yesterday that EU negotiator Michel Barnier was set to have talks with EU countries impacted by the fisheries policy. This would suggest movement on one of the main sticking points alongside the role of state aid. US politics is likely to dominate the week ahead with European COVID-19 cases rising steadily in the background. Paris is shutting all bars from Tuesday amid a continued increase in cases. In the UK, hopes that cases had slowed last week were quashed as 16,000 cases were found to be unreported between 25 September and 2 October. This week we will also see the releases of the services and manufacturing Purchasing Managers Indexes across the world, with most countries reporting today and the UK tomorrow.

Although current global events may cause market researchers and analysts to concentrate heavily on certain areas of the market (in this case the US Election and it’s effect on the US Economy), it is important that we keep our views as holistic as possible and consider the whole market. Events such as the US election can have a knock-on effect on a wide variety of market sectors, and it is important to understand the reasoning behind these effects.  

Please keep reading our blogs in regular intervals to keep your view of the markets well informed, holistic and up to date.

Keep safe and all the best

Paul Green

06/10/2020

Team No Comments

Legal and General: Our Asset Allocation team’s key beliefs

Please see below for the latest blog from Legal and General’s Investment Management Team regarding their ‘key beliefs’ regarding the markets:

Forward looking

It may seem difficult when faced with the latest political developments and a second wave of COVID-19, but investors need to be forward looking. If markets are indeed relatively efficient pricing mechanisms, we shouldn’t focus too much on what’s happening today; instead we need to think about what could happen tomorrow and beyond.

As with all Key Beliefs emails, this email represents solely the investment views of LGIM’s Asset Allocation team.

Pent-up demand unleashed

From an equity perspective, the losers from social distancing have been hit hardest by the pandemic. But if and when consumer behaviour normalises, these stocks should also benefit disproportionately.

In the spring and summer, such a recovery felt too distant for the travel and leisure sector, so we preferred other laggards like autos and small-caps. But as time has passed, we now expect generally positive macro news over the coming three to nine months (on vaccines, rapid testing and regulatory decisions) to start becoming a tailwind for this sector as well.

While we have no edge on the specific events, market expectations do not look excessive: sentiment is still bearish on the sector and performance has remained underwhelming and stuck in the middle of the post-pandemic range.

A vaccine should help these stocks in two ways: through de-risking the future path of their earnings, and through upgrades to earnings estimates if consumers resume their past behaviours faster than expected. This has already happened for other sectors, perhaps helped by some pent-up demand after the lockdown.

That’s not to say there are no risks to this trade. A greater-than-expected second wave could further delay a restart, customers could reject the changes made to the travel and leisure experience, or outbreaks on cruises could set back the wider sector.

But we believe that being closer to a potential turning point in the news flow, without having seen any meaningful outperformance for the sector, makes the risk/reward dynamics attractive enough for a first step.

Powerful gambit

European Commission President Ursula von der Leyen gave her annual State of the Union address last week. Invoking Margaret Thatcher in an argument with a Conservative British Prime Minister was a bold but powerful gambit. In the words of the original Iron Lady back in 1975, “Britain does not break treaties. It would be bad for Britain, bad for relations with the rest of the world, and bad for any future treaty on trade.” The sense of frustration with the shenanigans in Westminster is obvious.

It is tempting to think that the latest dispute is terminal for the prospect of a successful conclusion to trade talks. But the nature of brinkmanship is that it drives matters to the brink. Almost all European negotiations go to the 11th hour or beyond, so it is pretty hard to infer anything definitive at this stage.

If forced to pick a direction for sterling from here, we think appreciation is more likely than further depreciation. Portfolios naturally heavy on foreign currency therefore need to be increasingly mindful of a “rabbit out of the hat” moment driving the pound higher.

For non-Brexit obsessives, von der Leyen also had some interesting things to say about green bonds and carbon objectives. The EU is set to embark on an unprecedented issuance spree to finance the recently agreed Recovery Fund. Up to 30% of the planned €750 billion will be raised via green bonds. In the short term, we think the surge of EU issuance risks driving up yields in ‘semi-core’ European nations like France. Over the longer term, given that the green-bond market totals around $400 billion outstanding today, this will really bring the asset class into the mainstream.

Off the charts

We have highlighted the TIM Monitor a few times in previous Key Beliefs as one of a number of quantitative risk environment indicators that we use. The monitor aims to provide a characterisation of the current market environment and the likelihood of extreme losses going forward based on the combined information from two indicators: the Systemic Risk Index, which measures equity market fragility, and the Turbulence Index, a measure of ‘unusualness’ in global equity returns.

Needless to say, equity markets proved to be both fragile and extremely unusual in the first quarter, so much so that the TIM Monitor was quite literally off the charts. The monitor moved into ‘Alert’ territory on 25 February, with the S&P 500 down by around 7.5% from its peak at that point. After that, the S&P 500 fell a further 30% to its low on 23 March. The monitor remained in ‘Alert’, with the Systemic Risk Index remaining uncomfortably high, until 17th August when it finally switched back to ‘Warning’, almost exactly at the time that US equities returned to their previous highs. So, it was a timely indicator to get out of equities, but a bit slow to get back in again.

The length of its tenure in ‘Alert’ territory in part reflects the fact that a small number of key drivers propelled the market back up again – swift and comprehensive monetary policy responses over the past decade have had a tendency to do exactly that in times of stress. But we must also acknowledge that it is partly down to how the Systemic Risk Index is constructed, as it is an intentionally (sometimes painfully) slow-moving indicator.

Within an investment process involving judgement, these types of frameworks can be extremely useful in providing a different lens through which to view the world. Each one comes with its own nuances, however, and hence we believe they are best used in combination with other metrics rather than in isolation.

Detailed and focussed opinions from market leading investment managers such as Legal and General can be a useful addition to your overall view of the markets.  

Please keep reading our blogs to ensure your holistic view of the markets is well informed, diversified and up to date. 

Keep safe and well

Paul Green

23/09/2020

Team No Comments

Brooks MacDonald MPS Monthly Market Commentary August 2020

Please see below for Brooks MacDonald’s MPS Monthly Market Commentary from August, received by us late yesterday 18/09/2020:

  • Global equities resumed their upwards trajectory during August, as signs of economic improvement and positive developments on a COVID-19 treatment boosted optimism about a worldwide recovery. Further strains in US-China relations unsettled markets, although there was an apparent ease in tensions late in the month.
  • UK stocks were up during the month, after it emerged that the economy expanded by a stronger-than-expected 8.7% in June from May1 . However, GDP shrank by a record 20.4% over the second quarter2 , which pulled the economy into a deep recession. A renewal of quarantine rules for people arriving in the UK from certain countries pressured stocks, particularly those in the travel sector. The composite purchasing managers’ index (PMI) rose to 60.3 in August from 57.0 in July3 , according to an early estimate.
  • US equities were higher over August. Hopes of further government stimulus – yet to be finalised by month end – optimism about a vaccine and a continued rally in technology stocks propelled the S&P 500 and the Nasdaq Composite indices to record highs. The contraction in second-quarter GDP was revised to 31.7%, on an annualised basis, from 32.9%, although it remained a record slump4 . The composite PMI rose to 54.7 in August from 50.3 in July5 , an initial estimate showed. In a significant change to monetary policy, the Federal Reserve said that it would adopt a more flexible inflation target regime aimed at supporting employment and the economy.
  • European markets moved upwards, helped by signs of economic improvement, particularly in Germany, and optimism about a COVID-19 treatment. However, the UK quarantine rules, which mostly affected European countries, unsettled investors. The composite PMI fell to 51.6 in August from 54.9 in July6 , an initial estimate showed.
  • Japanese equities increased over August, although Prime Minister Shinzo Abe’s resignation, due to poor health, rattled the market late in the month. Stocks made a strong start to August as they tracked gains in US shares and as a weakening of the yen against the dollar boosted exporters. The rises came despite bleak economic news: GDP shrank by a record 7.8% over the second quarter, which pushed the country deeper into recession7 . The composite PMI was unchanged at 44.4 in August8 – remaining in contractionary territory – an initial estimate showed.
  • Asia-Pacific stocks (excluding Japan) made gains over the month on continued signs of economic improvement, particularly in China. The US-China tensions restricted the increases. In China, a rise in exports and reduced factory price deflation in July boosted optimism about an economic recovery. The same optimism helped push South Korea’s Kospi Index to a two-year high during the month. Taiwan’s Taiex Index came under pressure after a sell-off in technology shares. Australia’s benchmark S&P/ASX 200 Index was little changed as optimism about a vaccine was largely balanced by continued worries about COVID-19 infections in the country.
  • Emerging markets edged up over August, on optimism about a vaccine and as US-China tensions appeared to ease. Indian shares rose steadily, with vaccine hopes helping the BSE Sensex 30 Index to reach a six-month high. Brazilian equities dropped on renewed political uncertainty as the resignation of a number of top economic officials imperilled planned reforms. Equities fell in Argentina as the country battled rising COVID-19 infections.
  • Benchmark yields on core developed market government bonds – including the US, UK, Japan and Germany – rose over the month. US benchmark 10-year Treasury yields hit a record low closing level of 0.52% on 4 August9 because of market concerns about an economic recovery, although they rose steadily over the rest of the month. In the corporate debt market, US investment-grade and high-yield spreads tightened further.

Brief and informative articles like these are an efficient way to take away key points regarding recent market developments globally.  

Please keep reading our blogs regularly to give yourself a holistic and up to date view of the markets.

Keep safe and well,

Paul Green

17/09/2020

Team No Comments

Blackfinch Group Monday Market Update

Issue 8, 14th September 2020

Please see below for the latest Blackfinch Group Monday Market Update:  

UK COMMENTARY

  • House prices rose 1.6% in August from July’s level according to the Halifax House Price Index. The annual increase in house price accelerated to 5.2% from July’s 3.8%, hitting its highest level since 2016.
  • Reports suggest that the UK is willing to walk away from Brexit negotiations in mid-October if a free trade agreement hasn’t been agreed upon.
  • A week of Brexit talks conclude with the EU telling Britain that it should urgently scrap a plan to break the divorce treaty, but Boris Johnson’s government have refused and continued with a draft law that could collapse four years of negotiations.
  • A rise in the number of COVID-19 cases in the UK brings fears of a second wave, forcing the government to reimpose some restrictions over social distancing. Daily cases have risen to close to 3,000, from c.1,000 at the end of August.
  • The British Retail Consortium’s figures report that year-on-year growth in retail sales rose 3.9% in August, but city centre shops continue to struggle.
  • UK gross domestic product (GDP) rose for the third month in a row in July, up 6.6%, although this is still 11.8% below January’s level.
  • A report from the National Institute of Economic and Social Research forecasts that the UK economy will emerge from recession at the end of the third quarter.

US COMMENTARY

  • Comments from Donald Trump that he may seek to ‘decouple the US economy from China’ suggest that the trade war between the two nations is far from over.
  • The US revokes visas for over 1,000 Chinese students on grounds of ‘national security’.
  • Initial jobless claims for the week are an exact repeat of the previous week’s number of 884,000. Continuing jobless claims rose to 13.39mln, above analyst expectations of 12.92mln.
  • Once again mutual agreement between the Democrats and the Republicans fails to be reached over details of a further COVID-19 support package.
  • US inflation rises by 0.4% in August, higher than forecast, but below the 0.6% rise seen in July.

EUROPE COMMENTARY

  • Insee, the national statistics institute of France, forecasts that the economy will contract by 9% this year, down from earlier predictions of an 11% drop.
  • EBC President Christine Lagarde announces that monetary policy remains unchanged, but that the bank has to carefully monitor the ‘negative pressure on prices’ that the Euro is exerting.

ASIA COMMENTARY

  • Revised GDP figures for Japan show that the economy shrunk by 28.1% in the second quarter of the year, worse than preliminary estimates released in mid-August.
  • China reports its largest jump in exports in 18 months, rising 9.5% in August compared to a year prior.

COVID-19 COMMENTARY

  • AstraZeneca confirmed that it had halted work on its COVID-19 vaccine, currently in development with Oxford University, after a ‘serious event’ during the trial process, reported to be a member of the clinical trial falling ill. However, trials officially restarted over the weekend.

These articles provide concise well-informed views that cover the whole of the market and are useful to maintain your up to date view of the markets globally.

Please keep reading our blogs regularly to give yourself a holistic and up to date view of the markets.

Keep safe and well,

Paul Green

14/09/2020

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Markets in a minute: Global markets rise but UK shares lag behind

Please see below for the latest Markets in a Minute update from Brewin Dolphin, received late yesterday 02/09/2020:

Global share markets mostly rose over the past week, driven by growing signs of an economic recovery, positive news on coronavirus developments, and the US Federal Reserve’s shift on inflation targeting (see below).

Sentiment in the US was so bullish that the S&P500 set fresh record highs every day last week, helped by a cooling of the US/China tensions. The UK, however, was a notable underperformer, with the FTSE100 weighed by a stronger pound. This reduces the value of multi-national companies’ dollar-based earnings.

A mixed start to the week

The UK markets, along with many in Europe, were closed on Monday, although in the US it was business as usual and shares fell slightly.

On Tuesday, however, US shares rebounded, with the Dowgaining 0.76% and the S&P500 rising by 0.75%, while the Nasdaq continued its extraordinary rally, rising by 1.4% to 11,939.67.

In the UK it was a different story, as the continuing strength of the pound and Brexit uncertainties saw the FTSE100 fall by 1.7% to 5,862.05, its worst level in three months.

In early trading on Wednesday, UK shares were heading up, as Nationwide reported house prices had had risen to an all-time high of £224,123 in August, as activity rebounded after the lockdown was eased.

Market performance*

  • FTSE100: -3%
  • S&P500: +2.4%
  • Dow: +1.4%
  • Nasdaq: +4%
  • Dax: -0.6%
  • Hang Seng: -1.2%
  • Shanghai Composite: +1%
  • Nikkei: -0.7%

*Data for the week to close of business, Tuesday 1 September.

Coronavirus news

New global coronavirus cases have been trending sideways for a month now. Infections in emerging economies may be slowing especially in Brazil, South Africa (which has gone from 13,000 new cases a day down to around 2,000), Pakistan, Mexico and Saudi Arabia.
In addition, new cases are falling in developed countries, led by the US which has seen a sharp decline, and also Japan, both of which are helping to offset some worrying rising trends in Europe.

Encouragingly, the death rate in this second spike of cases in developed countries is far lower than the highs of April, even though the number of new cases being detected is well above the April highs. This is likely to be because there is more testing of younger people and therefore more cases detected among younger, more resilient populations. This is helping to avoid a return to a generalised lockdown and helping keep confidence up. 

UK piles on the debt

Although the UK has only just entered a recession, recent data has started to illustrate the true extent of the damage so far suffered during the coronavirus pandemic. The Office for National Statistics has revealed that, following the sheer cost of its Covid-19 response, UK government debt has risen above the £2trn mark for the first time.

According to the data, spending on measures (such as the widely used furlough scheme) meant total UK government debt was £227.6bn higher in July 2020 than it was a year before. At the same time, tax revenue has been hit hard by the fact many businesses and people are earning and spending less. Combined with greater government borrowing, this is the first time UK government debt has been above 100% of gross domestic product (GDP) since the 1960s.

Jackson Hole Symposium

In his speech to the annual gathering of central bankers and policymakers in Jackson Hole, Wyoming, US Fed Chair Jerome Powell confirmed it is moving to a system of inflation “average targeting”.

This is important because it means that it will allow inflation to run above 2% to make up for a previous undershoot. The Personal Consumption Expenditure (PCE) price index is the Fed’s preferred inflation index for the 2% target, and in the chart below you can see it has been running below 2% for a sustained period of time for the past decade.

According to the St Louis Fed, even if you allow for 2.5% PCE inflation, which is an overshoot of inflation of 0.5%, it will take until 2032 to make up for the inflation undershot over the past decade. So, the implication is that the Fed wants to let the economy to run “a little hotter”, with faster-rising prices, without the need to raise interest rates or tighten monetary policy when inflation is above 2%. It also likely means that US interest rates will stay at, or near, 0% for a long time, which should be a positive for investment assets. Indeed, many think that the US will need to return to near-full employment and inflation of at least 2% before the Fed will consider raising rates again. We expect further guidance on this at the next Fed meeting later this month.

US/China tensions cool

Powell’s speech came in a week of broadly positive economic news for the US. At the beginning of the week, both the US and China affirmed their willingness to negotiate and declared they were ready to progress with trade talks. With tensions between the two nations a recurring source of stress for investors, this update was welcomed by markets.

US economic data

  • US Durable goods orders in July were up 11.2% vs expectations of 4.8%, helped mostly by new orders for vehicles and parts (+21.9%), electrical equipment and electronic products. Durable goods orders are a proxy for business investment demand and it has now risen for a third consecutive month – a sign things are really normalising.
  • US housing data, which is vital in supporting economic growth, has been really encouraging. July new home sales came in significantly above expectations at $900k versus the estimated $790k, surging to the highest level since the 2009 financial crisis. Existing home sales increased by a record 24.7% in July to an annual rate of $5.86m, the highest level since December 2006. The median house price rose to 8.5% on an annualised basis, the highest since April 2015. Pending home sales also rose 5.9% in July compared to June, after a huge 16.6% increase in June over May.

Australia enters recession

Having avoided a recession even during the financial crisis of 2008/09 (thanks to huge demand from China for its iron ore and other commodities), the world’s longest economic expansion has finally ended. After almost 30 years of uninterrupted growth, Australia’s economy contracted by 7% in the June quarter, following a 0.3% contraction in the first three months of the year.

Brewin Dolphin are market leading fund managers, and so receiving their regular insight in this efficient manner is a quick but well-informed way to update your consensus view of the global markets.

Please keep using these blogs to regularly update your knowledge of current market affairs from around the world.

All the best, keep well!

Paul Green

03/09/2020