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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

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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

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FTSE primed to play catch-up after lagging US stocks

Please see below for the latest market update from AJ Bell: 

The pound losing its recent strength and oil stocks responding to a higher commodity price could boost the index

Investors in UK stocks have been looking jealously (or frustratingly) at the performance of the US markets and wondering why the FTSE 100 has stubbornly refused to rebound as fast.

Year to date, the S&P 500 is up nearly 5% and the Nasdaq is up 25% whereas the FTSE 100 is down nearly 19%, all on a total return basis.

The answer is simple – the UK stock market is very under-represented by tech stocks which is the sector that has driven US markets this year.

The UK is also heavily weighted towards banks and energy stocks, two of the worst performing sectors in 2020.

The former has been depressed by a drop in interest rates, rising concerns over potential bad debts as consumers and companies struggle as a result of the pandemic, and the suspension of dividends.

The energy sector has been hit by a big decline in the oil price and a reduction in dividends making it less appealing to income investors.

Yet are we about to see a reversal of fortunes?

Recent strength in the pound versus the US dollar will have worked against the multitude of companies on the FTSE 100 which earn in the latter currency, but whose share price is quoted in the former. Those dollar earnings will be worth less when translated into sterling.

Approximately three quarters of the FTSE 100’s earnings come from outside the UK, so foreign exchange rates really matter to the performance of the index.

Bank of America this month turned bullish on UK equities, partly because it expects the pound to weaken again on the back of rising no-deal Brexit risks. If sterling weakens then dollar revenues, once converted back into sterling, are worth more.

The bank also believes the energy sector should catch up with recent strength in the oil price, thereby giving another support to the FTSE 100 with oil producers Royal Dutch Shell (RDSB) and BP (BP.) being major constituents of the index.

Such predictions would suggest investors are right to remain hopeful for better returns from the FTSE. However, performance is still dependent on economic activity picking up around the world and unfortunately there are some mixed signals.

Stock markets last week took a tumble after the US central bank expressed concern that the pandemic could greatly impact the US economy in the medium term.

The latest Eurozone PMIs disappointed while the US and China’s recent figures have been more upbeat. These are various indices which show confidence levels from purchasing managers and which are a good economic bellwether.

Against this backdrop, the latest Bank of America survey of fund managers shows that institutional investors remain bullish about markets despite a difficult backdrop.

It’s an ever-moving feast and investors would be best served by not fiddling with their portfolios in response to every bit of economic data that comes out. Stay diversified and accept that there may well be some parts of your portfolio lagging others – it’s just the nature of investing.

A brief but concise summary like this is an efficient way of keeping your views of the markets up to date.

If you read the previous blog you can see Jupiter’s Fund Manager, UK All Cap, James Bowmaker’s views on the FTSE too.

Take care and keep well.

Paul Green

28/08/2020