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Brooks MacDonald Daily Investment Bulletin: 21/01/2021

Please see below for the latest Brooks MacDonald Daily Investment Bulletin received by us today 21/01/2021:

What has happened

Markets greeted the inauguration of Joe Biden with a rally driven by the tech heavyweights. Some markets concerns remained around the final handover of Presidential power from Trump to Biden so there will be an element of welcoming the calmer tone of the new President as well as removing a transition risk premium.

President Biden

Yesterday’s inaugural Presidential address saw President Biden attempt to change the tone in Washington by encouraging bipartisan debate rather than absolutism. This speech was followed by a series of executive orders as expected. This included the US re-joining the Paris climate agreement, ceasing the withdrawal from the WHO, ending the travel ban on a number of Muslin countries and a federal mask rule on interstate travel and within federal buildings. As a sign of the focus for the new administration’s economic goals, there were also some specific COVID support measures such as pausing federal student loan repayments and extending the federal eviction moratorium. Yesterday’s speech, coupled with that of Janet Yellen earlier this week, paints a market friendly picture where near term support remains the focus. Of course, the sting in the tail could be higher taxes down the line but we need to remind ourselves of the thin Senate majority and the fact the midterms are in November next year and this could change the power balance in Congress yet again.

Central bank decisions

Yesterday we heard from the Bank of Japan which left monetary policy unchanged whilst predicting economic challenges over the course of 2021. Today is the turn of the ECB and given the central bank announced a further easing package in December, little dramatic change is expected. The central bank meets under the cloud of Euro Area CPI estimates that showed the region in deflation (-0.3%) compared to the year before. Whilst forward looking CPI estimates have been rising, in line with the broad global market reflation narrative, even these future estimates remain well below the ECB’s 2% target. The central bank therefore likely has room to increase stimulus but it isn’t clear that simply doing more of what has been tried before (bank lending, negative rates and quantitative easing) will have the desired effect.

What does Brooks Macdonald think

Equities rose and volatility fell as power transitioned peacefully between President Trump and President Biden. It is interesting that yesterday’s rally was so tech focused given fears over regulation under a Democrat White House and Congress. The rally yesterday implies that investors are confident the new administration has its hands full with the COVID response and is unlikely to look towards market unfriendly reform within that context.

Daily investment bulletins like this could prove to be very useful in the near future. Yesterday’s Presidential Inauguration is sure to cause ripples in the markets globally and keeping up to date with developments as they happen can, as ever, be very beneficial to your own views of the markets.

Please utilise our blogs in keeping your own views of the market holistic and up to date.

Keep safe and well.

Paul Green 21/01/2021

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Weekly Market Commentary | Fiscal stimulus and vaccination goals on the agenda for Biden this week as presidency begins

Please see below for the latest Weekly Investment Bulletin from Brooks MacDonald, received by us yesterday 19/01/2021:

US markets are closed on Monday ahead of a busy week of politics, earnings and central bank meetings

Last week saw most major equity indices decline as risk appetite waned after a strong start to 2021. The primary drivers of this were concerns over Federal Reserve tapering and fears that the new Biden administration may struggle to deliver the proposed fiscal stimulus. More positively, Chinese Q4 GDP showed a beat to the upside with the country growing by 2.3% year-on-year in 2020, a stark contrast to most other G20 nations which are expected to see significant declines.

Wednesday’s inauguration of Joe Biden as US President begins the politically important first 100 days in office

The week starts slowly with Martin Luther King Day meaning that US markets are closed. When they reopen however, politics in both the US and in Europe will dominate the headlines. On Wednesday, Joe Biden will be inaugurated as the next President of the United States and with it the politically important first 100 days will begin. The response to the coronavirus pandemic will be high on the new administration’s agenda with ambitious fiscal stimulus and vaccination goals being mentioned ahead of Wednesday. In February, the new President is expected to unveil a more comprehensive economic plan which will include infrastructure investment as well as policies to tackle climate change. Meanwhile in Europe, reports suggest that Italian Prime Minister Conte will survive a vote of no confidence today due to several abstentions. If these prove correct, this will reduce the near-term risk of fresh elections. Staying in Europe, the German Christian Democratic Union (CDU) have elected Armin Laschet as the new party leader, however it remains to be seen whether Laschet will be nominated as the chancellor candidate for the ruling CDU/CSU (Christian Social Union in Bavaria) coalition for September’s federal election.

Earnings season begins to gain traction this week with a string of banks and tech firms reporting

While we had a small number of earnings releases last week, including J.P. Morgan, this week sees a ramp up across both the US and Europe. The US tends to reach peak earnings momentum a little earlier than Europe so that region will be the focus for the rest of January. This week we have Bank of America, Netflix, Goldman Sachs, Morgan Stanley, Intel and IBM, so a range of sectors but a technology/bank focus. Coming into the season, large cap US equities are expected to see a year on year earnings decline for Q4 2020.

After a quieter start due to the US holiday, this week is likely to become far busier as US politics, European politics, earnings and central bank meetings all arrive. The European Central Bank is the major bank meeting this week and while no material change is expected, markets will be watching the rhetoric closely to see if there are any signs of tightening ahead.

Weekly updates like these are a useful method of frequently updating your holistic view of the markets, especially given the way the world is rapidly changing with Coronavirus.

Please continue to utilise these blogs to help inform your own views of the markets.

Stay safe and well.

Paul Green

19/01/2021

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Market predictions and investment resolutions for 2021

Please see below for Invesco’s article on Market Predictions for the year ahead, received by us yesterday 06/01/2020:

Happy New Year! No one wants a year in review for 2020, but here is what I learned from the past year: History may not repeat itself, but it sure does rhyme. What we learned from 2020 is a repeat of the lesson we learned from the global financial crisis (GFC): Central banks are very powerful. They can’t cure viruses and they can’t create jobs, but they can boost confidence and move markets — a lot. That is the big similarity 2020 had with 2009: Central bank intervention mattered, especially by benefiting risk assets.

When I think of the New Year, I think of predictions and resolutions. And so today, I provide you with a little of both.

My New Year’s predictions

1. US-China relations may get warmer. There seem to be two factions emerging among Biden loyalists: “reformists” who want to push China aggressively on key issues and check its power, and “restorationists” who want to restore US-China relations to where they were in the Obama administration. I believe Biden will do what he typically does: land somewhere in the middle. I don’t expect US-China relations to return to what they were pre-Trump. However, I do expect the relationship between the two countries to improve and normalize. In particular, I expect more predictability and less volatility. While Biden may not unwind tariffs immediately, I do expect him to unwind the Trump administration tariffs after a “study” of their impact (which has obviously been negative for parts of the US economy, especially agriculture). The Biden administration will likely be aggressive on specific issues with China and pursue those issues multilaterally — but I expect that to occur within the context of a broader US-Sino relationship that is more cordial because the fortunes of many US businesses are tied to China. The Chinese economy is on pace to soon overtake that of the US, with the timeline expedited due to COVID, which gives China growing leverage. In fact, the Centre for Economics and Business Research recently released its forecast that China will overtake the United States by 2028 as the world’s largest economy, which is five years earlier than previously estimated due to the two countries’ very different recoveries from the pandemic.1 In addition, China has already begun to signal that it would like improved relations with the US. China’s Foreign Minister Wang Yi said in a recent interview with the South China Morning Post that both the US and China have been negatively impacted by the deterioration in their relationship over the past several years, and that US-China relations have come to a “new crossroads” with a “new window of hope” opening.2

2. Developed countries may have a better recovery than they did post-GFC. As COVID-19 vaccines are broadly distributed, I expect the economic recovery to be far more robust and inclusive than the economic recovery coming out of the global financial crisis. I believe the services industry will rebound with greater intensity, benefiting many lower income workers. That doesn’t mean that there won’t be more glitches in distribution — I fully expect there to be. And there will likely be more pandemic-related headwinds, such as the development of worse strains of the virus. However, once a substantial portion of the population is inoculated, I expect the economic recovery to be powerful. 

3. Oil may rise. Given my expectation for a strong economic recovery in 2021 as vaccines are distributed, I also expect demand for oil to increase significantly. I believe this will lead to a substantial increase in the price of West Texas Intermediate crude oil — even if we see a ramp up in oil production.

4. Bitcoin may fall. I know there is a lot of excitement over Bitcoin, but it’s starting to feel a bit like Tulipmania. Bitcoin rose more than 300% in 2020, with much of the gains made in the last few months of the year.3 I continue to believe gold is a far better choice for diversification into “hard assets” and as a hedge against geopolitical risk. Bitcoin might continue to run for a while this year, but I expect it to be volatile and to ultimately disappoint, as it has in the past after strong rallies.

5. The S&P 500 Index may have another double-digit return in 2021. With vaccine distribution beginning, a robust economic recovery anticipated in the not-too-distant future, as well as extraordinary accommodation from the Federal Reserve, I expect a continuation of the stock rally we saw in 2020, albeit with drops and pauses along the way. Better-than-expected corporate earnings should also help.

My New Year’s resolutions

1. Stay invested and well diversified. While I feel very confident about risk assets in 2021, that doesn’t mean there won’t be volatility and sell-offs in the coming year. I believe having adequate exposure to stocks, fixed income, and alternative asset classes is key to building a portfolio that may withstand volatility.

2. Look to Asia’s emerging markets. My outlook is especially bright for the emerging markets countries that have managed the pandemic well, such as China and Korea. These economies have a head start on the robust vaccine-fueled economic recovery that I expect in 2021.

3. Don’t overlook tech. While the economic rebound may result in strong performance by cyclical stocks in sectors such as energy and consumer discretionary, I don’t necessarily expect tech stocks to underperform. I continue to favor adequate exposure to the technology sector, as I believe many tech stocks may continue to benefit from trends that accelerated during the pandemic.

Although nothing is guaranteed for the future as proven by the year 2020, expert insight and opinion like this is a good way of seeing how actions and news developing worldwide could have an impact on the investment markets, and thus highlights good topics for discussion.

Please utilise blogs like these to aid your own informed opinions on what may lie ahead for the markets, but I reiterate that nothing is guaranteed for the future.   

Keep safe and well and all the best for 2021.

Kind Regards

Paul Green

07/01/2021

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Brooks McDonald Daily Investment Bulletin

Please see below for the Daily Investment Bulletin from Brooks McDonald, received by us today 05/01/2021:

What has happened

Markets started the day positively but the New Year jubilance faded as the US COVID outlook worsened and a tight Georgia run-off today could go either way. The US index started the day in positive territory before falling as much as 2.5% then settling 1.5% down at the close.

COVID’s new variant and restrictions

The new COVID variant has been responsible for a large quantum of the surge in the South East of England and news that it had now been detected in New York, Colorado, California and Florida did little to help the mood. Whilst there is no evidence that the new strain is more deadly it does appear to be transmitting aggressively, causing strain on the healthcare system. It is this strain that led to UK PM Johnson announcing that England would move into its third Lockdown with the new stay at home rules far more reminiscent of March 2020’s with schools closed and only essential journeys allowed. UK Chancellor Sunak is expected to unveil a fresh support package for UK companies in light of these new tough restrictions which are expected to produce a similar economic impact to that seen in March and April last year.

Georgia run-off

The other event keeping New Year optimism in check is the Georgia Senate run-off. This is clearly key in determining which party has control of the Senate and therefore whether a blue sweep can be achieved. Back in November the market’s base case was that the Democrats would win every race and this would give them the flexibility to launch substantial stimulus in Q1 2021. Once this didn’t immediately materialise, investors warmed to the idea of a split Congress as this would curb the chances of tax rises, tougher regulation and other less economically positive reforms. As we approach today’s election, the Democrats are ahead in both seats, albeit it narrowly, and investors are not entirely sure which side of the coin they want the race to land.

What does Brooks Macdonald think

A Democrat clean sweep or a split Congress both have benefits and negatives but our instinct is that a split Congress would be more market friendly as it retains the status quo and financial assets will look through the positives of US Fiscal Stimulus quite quickly as compared to broader reforms. Even if the Democrats do take both seats, and VP-Elect Harris is left with the deciding vote in the Senate, the current filibuster rules will stop contentious legislation. If we do see a blue sweep, markets will look very closely at any suggestions from the Democrats that they would look to remove the Filibuster from the next Senate session.

Regular daily updates like these are a useful method of frequently updating your holistic view of the markets, especially given the way the world is rapidly changing by the day with Coronavirus.

Please continue to utilise these blogs to help inform your own views of the markets.

Stay safe and well

Paul Green

05/01/2021

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Markets in a Minute: Markets rise over the week, but mood is soured by virus worries and Brexit

Please see below for the latest Markets in a Minute update from Brewin Dolphin, received yesterday evening 22/12/2020:

Global equity markets moved mostly higher over the past week, as the vaccines programme boosted optimism and an agreement on the US stimulus package edged closer. Eternal hope of a Brexit deal helped the more UK-centric shares and European markets. The FTSE100 has been an underperformer, however, as the dollar has been weakening relative to sterling, squeezing the earnings of FTSE’S multinationals, which gather most of their revenue in dollars. The ongoing dollar slide helped push commodity prices higher, and bitcoin briefly hit a record $23,000 amid a flurry of speculation, although nobody can really gauge its true value.

Last week’s markets performance*

• FTSE100: -0.26%

• S&P500: +1.25%

• Dow: +0.44%

• Nasdaq: +3.05%

• Dax: +3.93%

• Hang Seng: -0.02%

• Shanghai Composite: +1.42%

• Nikkei: +0.41%

*Data for week to close of business on Friday 18 December

Equity markets pull back at start of week

News of the virus mutation in the UK, and resulting restrictions on the movement of people and goods to numerous countries led to a sell off in many markets around the world on Monday. The FTSE100 closed down by 1.73% at 6,416.32, and the FTSE250 ended 2.11% lower at 19,962.11. In Europe, the pan-European STOXX 600 index fell 2.3% after the UK announced its tougher restrictions in response to the vaccine, and the EU’s largest market, the German Dax, fell by 2.82%. Reaction was more muted in the US, where the S&P500 lost just 0.4%, while the Nasdaq lost 0.10%. The Dow closed up by 0.12%.

US stimulus bill passed

The long-awaited US stimulus package to extend unemployment benefits and fund a range of other pandemic-related expenditure was passed on Monday night after nearly six months of wrangling. The package, worth $900bn in total, will send one-off cheques worth $600 to households, with extra payments for children. It will also extend unemployment benefit payments worth $300 a week for those who are out of work due to Covid-19. These payments will last until March and give the vaccination programme time to take effect. However, President-elect Joe Biden has signalled he will look to pass a larger bill once he takes office in January.

Markets sensitive to risk

There is a lack of liquidity in the market at the moment, as many traders have started their Christmas breaks and there is less money flowing into shares and bonds. This can make markets quite volatile, and there is no denying that the newsflow right now is quite alarming. We heard of the new strain of Covid-19 emerging from the UK, prompting Tier 4 containment measures in London, the south east and parts of eastern England over the weekend. In Europe, there are concerns surrounding movement of people and goods which has led to travel constraints. This could have an impact on the economy – and our lives – unless some resolution is reached quite quickly.

This bad news linked with a lack of progress on Brexit, with travel restrictions making negotiations harder, led to weakness in UK and European markets at the start of the week. However, the pound has recovered its losses, indicating that investors are perhaps taking stock and realising that this is probably not as frightening as the headlines first seemed. There were hopeful headlines on Tuesday morning about a compromise on fishing quotas, but there is no firm news of progress. We must wait to see how this plays out in the coming days, but markets will be jittery until the end of the year at least; even if a deal is agreed, it needs to be cleared by the EU member states which will not happen until the new year. The US, meanwhile, was far calmer, with the Dow even closing with a small gain, as the US stimulus bill was passed.

Economic resilience Taking a broader view, the global economy is holding up better than expected given such challenging circumstances. Many UK businesses had reported activity improving in December. The IHS/Markit flash composite purchasing managers index, which measures business levels compared to the previous month, rose to 50.7 in December from 49 in November. A reading above 50 indicates business is expanding. The services element of the index, which covers leisure and hospitality, rose to 49.9 in December from 47.6 in the previous month, suggesting business levels are still falling. Yet the data was still better than anticipated and shows the economy holding up relatively well. PMIs in the US were even stronger, with the businesses saying that activity levels were improving, especially in the manufacturing sector.

All in all, there is a sense of confidence that the global economy will get through this very challenging period and emerge to recover next year, as things return to normal. On a 12-month view, we remain optimistic on equities, although it could be a bumpy ride until as sentiment rises and falls along with the headlines.

Brewin Dolphin regularly give us their insight of the markets. Updates in this efficient manner are 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.

Keep well and all the best

Paul Green

23/12/2020

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Blackfinch Group Monday Market Update

Please see below for the latest Blackfinch Group Monday Market Update received by us today 21/12/2020:

UK COMMENTARY

  • Talks continued in the hope of finding a solution in the Brexit negotiations.
  • Data showed redundancies hit a record 370,000 in the third quarter of the year, with the unemployment rate rising to 4.9%.
  • UK inflation slowed again in November, to 0.3% from 0.7%, with prices weighed down by retailers cutting prices during ‘Black Friday’ sales.
  • The Bank of England voted to leave interest rates on hold and revised its expectations for the decline in gross domestic product in the fourth quarter, from 2.0% to a “little over 1%”.
  • UK retail sales fell 3.8% month on month in November, although economists had predicted a decline of more than 4%.

US COMMENTARY

  • Talks continued over a further stimulus package, with the deadline fast approaching.
  • The Electoral College ratified the November presidential election result, with each state voting in line with their electorate to confirm the upcoming inauguration of Joe Biden and Kamala Harris.
  • US retail sales fell further than expected in December, declining 1.1% month on month.
  • The US Federal Reserve announced it will buy at least $120bn of bonds each month until substantial further progress is made towards its maximum employment and price stability goals.
  • First-time jobless claims data came in above expectations in the week to 12th December, climbing to 885,000.

ASIA COMMENTARY

  • The Bank of Japan extended its virus-related corporate lending programme by six months to September 2021, while making no changes to its monetary policy.

COVID-19 COMMENTARY

  • The US began its vaccination programme, with the first three million doses of the Pfizer/BioNTech vaccine distributed for use across all states.
  • The US Food and Drug Administration approved the vaccine developed by Moderna for emergency use.
  • News broke of a new variant strain of COVID-19 that has become prominent in London, the South East and Eastern England.

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

21/12/2020

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Blackfinch Group Monday Market Update

Please see below for the latest Blackfinch Group Monday Market Update received by us today 14/12/2020:

UK COMMENTARY

  • Despite pushing past many self-imposed deadlines, talks continue over a potential Brexit deal. Boris Johnson has, however, suggested that a no-deal scenario remains the ‘most likely’ outcome.
  • UK gross domestic product (GDP) grew by 0.4% in October, 23.4% ahead of its low in April. However, this remains 7.9% below pre-pandemic levels.
  • The UK total trade surplus, excluding non-monetary gold and other precious metals, decreased by £6.5 billion to £0.8 billion in the three months to October 2020, as imports grew by £14.3 billion and exports grew by a lesser £7.8 billion
  • The Halifax House Price Index rose 1.2% month-on-month in November. Data showed that house prices were 7.6% higher in November than the previous year, the highest year-on-year gain since 2016.
  • Market research group Kantar released grocery market share data for the period ending November 29th, indicating the largest month ever for the grocery market, with £10.9bn spent in stores and online. Data showed that the average British household has spent over £4,200 on groceries this year.

US COMMENTARY

  • Talks continue over a further stimulus package, with the initial deadline of the 11th December extended. Multiple Federal support schemes designed to help the unemployed and to protect renters from eviction, are due to expire in the new year.
  • Figures to the 5th December showed that 853,000 Americans filed for unemployment, the highest level in eight weeks, as new lockdown measures began in multiple states
  • It’s believed that the US government is preparing to sanction a number of Chinese administration officials for their perceived undemocratic actions in the Hong Kong election

EUROPE COMMENTARY

  • The European Central Bank (ECB) has increased the size of its COVID-19 stimulus package by €500bn, as well as agreeing a nine-month extension. In a speech announcing the measures, the bank’s president Christine Lagarde commented that sufficient herd immunity may be reached by the end of 2021 to allow the economy to function under more normal circumstances.

COVID-19 COMMENTARY

  • The first COVID-19 vaccines were rolled out in the UK, with the US expected to follow suit next week
  • Researchers conclude that the vaccine in development by Astrazeneca and Oxford University is 70% effective based on trials of over 20,000 people
  • Sanofi and Glaxosmithkline suffered a setback in their vaccine research, which is expected to push the timeline for deployment to the second half of 2021, should their candidate receive the necessary approvals

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

14/12/2020

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Brooks McDonald Daily Investment Bulletin 25/11/2020

Please see below for Brooks McDonald’s latest Daily Investment Bulletin, received by us this morning 25/11/2020:

What has happened

The US market hit another all-time high yesterday as the vaccine backdrop mixed with positive news around the US transition and expectations that Janet Yellen will be appointed Biden’s Treasury Secretary. The bias towards non-tech stocks continued with the equal weight US market outperforming the traditional index yet again.

Vaccine update

As more vaccines are revealed we expect the pace of news flow in this area to increase and yesterday Sinopharm submitted an application to bring its vaccine to the Chinese market. The Sinopharm vaccine has already been approved for emergency use and has been rolled out quite widely already. Official approval would also open the door to exports to the number of ASEAN countries that have bought the vaccine. This could be a meaningful step for countries without access, either due to economic or political factors, to the cheap Oxford/AstraZeneca vaccine. On the latter vaccine we saw information that the half dose followed by full dose combination which achieved 90% efficacy was only administered to those under 55. This may suggest the population wide efficacy of that strategy is far lower but that isn’t necessarily a problem. Higher cost (financially and logistically) vaccines with high efficacy can be used for those most vulnerable but the cheaper vaccines with equivalent efficacy only in younger cohorts, can be used for herd immunity.

UK Spending Review

Today will see the long-awaited announcement from the UK Chancellor on the state of the UK’s Public finances as well as detailing some short-term next steps. Importantly this is only a one-year review which has been scaled down given the uncertainties of COVID (and indeed Brexit). The tone of the announcement is likely to retain a focus on supporting the economy and jobs short term with the FT reporting that a £4.3bn employment plan will be revealed. That number is however relatively small compared to the numbers in March and this reflects the new context of a far tighter fiscal backdrop coming into 2021, something that will be outlined during the speech.

What does Brooks Macdonald think

The formal budget was deliberately pushed back as the UK economy simply couldn’t handle fiscal tightening when we are in a period of rolling lockdowns. Even next year the government will need to strike a cautious balance between getting public finances back on track and not derailing a delicate recovery which would ultimately generate a need for more fiscal support down the line.

These articles provide concise and 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

25/11/2020

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Biden presidency faces potential battles ahead

Please see the below article from BNY Mellon:

Democrats have taken control of the Presidency under Joe Biden but control of the Senate is still in question. Managers from BNY Mellon Investment Management outline how they expect the result to impact markets and sectors over the coming months should results hold

Joe Biden has won the US presidential election, but it is still unclear if Republicans have retained control of the Senate. The latter could hinder implementation of the Democratic Party’s future policy program.

It was against the backdrop of a global pandemic that an often bitter election campaign played out: now, the question for investors is how different asset classes are likely to respond and what political power a Biden White House can realistically assert if Congress remains split.

Regardless of a favorable outcome for Biden’s team, the prospects of a Democratic-sponsored hike in corporate taxes, a focus on a ‘green’ agenda and the potential for increased cooperation in the international sphere could possibly face Republican opposition.

Despite Biden’s win – and beyond party politics – Newton Investment Management global equity portfolio manager Paul Markham believes it could be a tough challenge for his party to satisfy its political base for new social policies, given the US’s poor governmental financial position – on account of its efforts to tackle the Covid-19 pandemic.

“Higher taxation or further increases in government spending could cause headaches for the Democrats – the forthcoming four years will be very difficult– and what has been pledged by the party in terms of social and health care may prove hugely challenging to actually deliver. Democratic pledges on social and healthcare changes could be especially difficult to deliver, given the currently challenging government financial predicament,” he says.

April LaRusse, Insight Investment’s head of investment specialists, believes key government policies are likely to remain unchanged under Biden, though she adds that the Presidential change and a wider mood shift could benefit risk markets.

“In our view, if the Senate does remain in Republican control, this outcome could mean key policies like corporate taxes will  be unchanged. That said, we would expect to see government bond yields move somewhat higher and risk assets rally, though not to the extent seen in 2016 given existing Fed policy. While an infrastructure deal might be less likely, so is further trade escalation, and so we may see trade-exposed names benefit from that.”

In contrast, Alcentra co-chief investment officer Leland Hart is more concerned by the election outcome, in light of the potential market uncertainty it could generate.

“We view the latest election outcome as a fairly negative result given the political uncertainty that may ensue. Ultimately, it means we could soon start to lose clarity on whether there will be decisive action by government and continued strong support for the economy,” he says.

Hart says decisions on where and how support to sectors of the economy is delivered could become more complex and subject to political division between Republicans and Democrats. “In the recent past both sides have tended to politicize decision marking, often with a negative impact on markets, including private credit markets.”

Newton Investment Management global strategist and member of the Real Return Team, Brendan Mulhern supports the view that potential bi-partisan conflict risks slowing economic progress and could dent market confidence.

“The lack of action a split House and Senate might bring about has been on display this year with the Republicans and Democrats unable to agree on another fiscal package to support the economy. It’s difficult to say how much of this is down to the two parties playing politics ahead of the election but if the House and Senate is still split there may be concerns that policymakers in Washington will not be able to act decisively to counter the impact of the Covid-19 pandemic on the economy. This may come to weigh on market sentiment and expectations,” he says.

John Bailer, lead portfolio manager of US dividend-oriented and large cap strategies at Mellon, also feels the Biden administration could adopt a moderate approach. On a more optimistic note he adds that, ahead of the election, the market was pricing in a Democratic sweep, so some sectors – such as financials, energy and defense which performed poorly before the election – might now rally.

He adds: “The most meaningful change would happen with executive orders and appointees to Government agencies.”

“I would expect more international cooperation, therefore helping companies hurt by the trade wars. Mergers & acquisitions could slow with a more consumer focused Department of Justice. Since 1933, a divided government with a Democratic President has led to 13.60% returns in the S&P 500, which has been better than average.”

Newton head of fixed income Paul Brain is also optimistic government spending could continue to support the US economy and hopes international trade relations might also thaw under Biden. Separately, he also expects to see a rise in US Treasury yields following the latest election.

“We would expect to see a new stimulus package put in place and global trade relationships improve a little, even if some US trade pressure remains on China. The US dollar could bounce back now that election uncertainty has been removed, but the trend is still likely to be lower against Asia in particular.

“In bond markets, we would expect yields in the US Treasury market to rise faced with the prospect of more government spending, with the curve steepening. Investors in risk assets such as credit may be concerned about the potential for increased corporate taxes later, though initially, government spending plans look set to dominate and improve the outlook. We would expect the US dollar to weaken over time as domestic spending increases and sucks in imports and emerging markets outperform.”

For Jeff Burger, senior portfolio manager, Mellon, one asset class that may benefit is municipal bonds. “Under a Biden Presidency infrastructure spend may actually pick up – funded largely by the sale of municipal bonds. Here, we believe there could be an emphasis on ‘green’ and environmentally sensitive projects as a way of providing economic stimulus,” he says.

Burger also raises the prospect of a push by Democrats to raise corporate taxes. If successful, this could also spark inflows into municipal bonds, given the tax exemptions they offer investors, he says.

Meanwhile, Insight fixed income fund manager Gautam Khanna believes  the Senate staying Republican under a Biden presidency means game-changing policies are less likely. In his view, markets will take comfort that further trade flare-ups are less likely (a positive for emerging markets and trade-exposed names), while possible Senate resistance to tax hikes will also be viewed positively.

However, the Senate could also look to curtail Democrats’ fiscal spending ambitions, with pandemic relief packages and renewed infrastructure spend likely to face deadlock. The potential deregulation roll-back may also hurt sectors such as energy and autos, he adds.

“If the pandemic continues to deteriorate and anarrow Republican Senate majority is a roadblock to a larger fiscal stimulus package, this ‘stimulus disappointment’ could cause increased volatility, offsetting the positive certainty on the tax front,” he says. “Nonetheless, markets are often comfortable with a lack of real policy change – so, for now, we see that result as positive for risk.”

Global equities: The long term view

For the Walter Scott investment team, the outcome could represent a change of direction in US policy with the prospect of higher taxation (albeit with more fiscal stimulus), wider health care benefits, a higher minimum wage and a re-engagement on climate changes issues. Even so, just how much of that agenda will actually be enacted depends on the extent to which a Republican Senate might counter some of these policies, aside from the question of government finances. They add: “Markets have increasingly anticipated policy shifts, but whatever the political landscape, we’re confident the US will remain a haven for enterprise and innovation. We’ve found that long-term growth patterns for businesses able to adapt and innovate are rarely significantly altered, whatever the political twists and turns.

Please keep checking back for updates on the US Election aftermath, the ongoing Pandemic and a range of investment commentary from some of the world’s leading investment houses.

Andrew Lloyd

09/11/2020

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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