Your Summer Newsletter 2020

Market Overview


Following on from a first quarter which saw the fastest sell off of global stock markets on record, the second quarter was always going to be a case of investors taking a step back, surveying the damage, and attempting to envisage where we go from here. There were countless articles written about exactly what ‘shape’ the global recovery would be, would it be a V, a U, a Nike swoosh, the possibilities were endless. At the start of the quarter economists were having a field day with predictions, hoping to be able to look back in twelve months’ time and say they got it right, but as famed economist JK Galbraith once said “the only function of economic forecasting is to make astrology look respectable”. 


A phased re-opening

No matter which shape of recovery this ends up becoming, April continued the upward trend that had begun in earnest at the end of March. 

Whilst COVID-19 continued its global spread, some countries infection rates started to fall and conversations about when economies may reopen began. 

Governments and central banks introduced unprecedented stimulus measures to reduce the damage caused by the economic shutdown, which also brought positive sentiment to markets. 

Economic numbers around developed markets continued to look dire at the start of the quarter, but this was not to anyone’s surprise and as such markets took it in their stride.

The upward trajectory could largely be put down to the intervention of central banks, and the repeated comments that they would do ‘whatever it takes’ to help keep their economies afloat. 

The Federal Reserve led the way, committing to not only unlimited government bond purchases, but also stepping into the corporate bond markets to purchase both high quality company debt and that issued by companies that have seen their credit ratings fall since the pandemic took hold.


The impact of support packages

In the UK, Chancellor Rishi Sunak announced a new ‘bounce bank’ small loan scheme for businesses affected by the pandemic after reports that banks were requesting personal guarantees (such as homes) for loans for small businesses. Sunak’s statement that the government’s goal was to provide “a bridge over what will be a sharp and significant crisis”, again highlighted the support on offer to any business that may need it.

The European Central Bank (ECB) continued its bond-buying programme, placing greater focus on countries such as Italy and Spain where the virus had the most devastating impact. Any extension of borrowing powers to small and medium-sized companies also helped sentiment. Further support packages announced by the ECB and the European Council reiterated the levels that counties were willing to go to. 

Developed markets hit ‘bull market’ territory in May, a phrase commonly defined as a situation where stock prices rise by 20% in a short period of time. The US, Japanese and European markets posted the largest rises, as steps towards a reduction in containment measures continued. 

Sectors such as technology continued their buoyant mood as investors digested how the technological advances that the public have adopted during the lockdown, may lead to a long term changing of habits, whether this be in the way we communicate or the way we shop.


It’s not over yet

Looking at the markets now you’d be forgiven for thinking that the virus was behind us and that ‘normality’ will resume without any further complications, but even the most optimistic amongst us must admit that this is highly unlikely. Improving economic data from China has helped to bolster confidence, but recent reports of an increase of cases in Beijing and partial lockdowns being reintroduced continues to bring question-marks over how soon is too soon to reopen an economy.  

Production of a vaccine against Covid-19 and any developments surrounding trials have dominated headlines and kept markets gripped. The general theme tends to swing between overzealous hopes of new developments to disappointment and despair at either inconclusive trials or the challenge of supplying billions of doses before the next winter flu season. 

Whilst every positive report of progress is greeted with anticipation, the fact remains that with so many vaccines still in their infancy, we must stay focused and not get drawn into the hype. The distribution of any potential vaccine, both geographically and demographically, also raises questions over how effective it may be in bringing an end to the pandemic.  

While many economies remain on a downward trajectory of case numbers, there are isolated instances of cases spiking in cities around the globe, particularly in the US. 

The effective management of these spikes is essential to ensure they are contained, and we do not return to a situation of entire countries having to be put in lockdown. 

We are encouraged by the swift action taken in the UK to place Leicester into lockdown and hope that action of this sort is repeated as and when necessary, and that the public acknowledge these instructions so that we can continue to move in the right direction.


Other considerations 

Away from COVID-19, other factors are still at play in the global economic landscape. 

US-China trade discussions were brought back in to focus late in the quarter, as White House trade adviser, Peter Navarro was quoted as saying the trade deal ‘was over’. These comments were quickly quashed, with President Trump confirming that the deal remained ‘fully intact’. 

Indeed, the US is now potentially turning it focus to the UK and Europe, with reports of new $1.3bn increase in tariffs on goods, and this is an area we watch with great interest.

The oil price remained volatile despite an agreement on production cuts. An extension to this agreement in June helped to add to the optimism about the prospects for a global economic recovery. The meeting also confirmed a stricter approach to making sure that members actually stick to the plan. Whether the deal can fix the unprecedented turmoil in the market and whether oil demand will ever return to previous levels remains to be seen though.

Brexit negotiations continue, but following the latest meeting there remained with serious differences of opinion over the state of a post-Brexit trade deal. 

EU negotiator Michel Barnier said the EU’s position needed to be “better understood and respected” by the UK if an agreement is to be found. Whereas, Boris Johnson said a “good deal” was possible but that any deal must recognise UK sovereignty in areas such as fishing. With the UK ruling out an extension to the December deadline, we are moving into the last throws of brinksmanship in the hope that a deal can be agreed.