The World In A Week - Vaccine Variety
Last week was a broadly positive environment, which continued the buoyant mood of the markets over the course of November to date. Global Equities, as measured by MSCI All Country World Index (ACWI) rose +0.4% in local terms, but a strengthening Pound Sterling meant this was marginally negative for GBP investors. Riskier forms of Fixed Income continued to put in a good performance, with High Yield Bonds returning +0.6% over the week.
November has been a remarkable month in that we have seen the investment trends of the last year reverse violently. This has been driven by the announcement on the 9th of November of the efficacy of the Pfizer vaccine against COVID-19 and has been sustained by subsequent successful vaccine announcements since then – notably the Oxford/ AstraZeneca vaccine results announced just this morning.
The market impact of these news developments and their implications for a return to economic and social normality have been remarkable. Value equities have strongly outperformed Growth equities, almost doubling their return for the month-to-date. Growth equities, spurred by expensive tech names and those that benefit from work-from-home, have vastly outperformed more economically sensitive Value names which tend to be comprised of Banks, Materials and Industrial companies. Similarly, we observed strong outperformance of UK and European markets vs their US, Japanese and Emerging Market equivalents which had previously outperformed.
In Fixed Income markets we saw a strong rise in interest rates (albeit from very low levels) and a pivot from safe government bonds to riskier high yield and emerging market debt. This was coupled with a weakening of the US Dollar, which has been quite strong.
We think it is reasonably likely that these trends will continue, but challenges remain in the short term. Cases of COVID-19 are rising quickly in the US, and this could serve to dampen sentiment as we come into the year end. What is now clear, however, is that the world has a variety of vaccines to choose from, which are effective at a variety of temperatures and formats. The market likely has quite a bit to go when it comes to fully pricing in a world inoculated against COVID-19.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 23rd November 2020.
The World In A Week - The Cummings And Goings Of UK Politics
Hot off the back of Biden’s election victory, Pfizer and BioNTech announced that phase III trials for a vaccine against COVID-19 were 90% effective and, unlike previous trials, there also appears to be no real secondary effects. No vaccine has gone from the drawing board to being proven highly effective in such a short period of time and Pfizer and BioNTech expect to have enough safety data by the third week of November to approach the Food and Drug Administration (FDA) for emergency approval. If the FDA approve the vaccine, production is poised to begin as early as December, with a limited number of people expected to receive the vaccine by the end of 2020.
News of a potential vaccine was much needed, and markets responded very strongly with unloved sectors such as financials, energy and airlines soaring. This news was particularly positive for the UK equity market which, after being in the doldrums for much of 2020, led other equity markets; the FTSE All-Share returned more than +7% at last week’s close. Economic data for the UK also showed signs of recovery, despite being down 9.6% on the same quarter last year and GDP increased by 15.5% in Q3 ’20 as lockdown measures eased.
In other news, Dominic Cummings, Chief Strategist, was ejected by Boris Johnson and left No. 10 for the last time on Friday; this follows the earlier resignation of Lee Cain, Director of Communications, an ally of Cummings. Johnson was left with little option but to fire Cummings following growing pressure from MPs and evidence that the pair were briefing against the Prime Minister. The departure of Cummings will provide a much needed ‘reset’ for the Conservative party, with Johnson focusing on rebuilding his relationships with his MP’s, fighting the COVID-19 pandemic and Brexit negotiations.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 16th November 2020.
The World In A Week - Biden His Time
It looks like it is finally over, as it would appear that the Democrats, with Joe Biden, have taken control of the US Presidency. The control of the Senate, however, is still in question, as it looks as though the Republicans may have retained control. The blue wave that was predicted by the polls may not have come in, but it is clear the US is extremely politically polarised.
What does that mean for markets? We would consider Trump’s strategy of continued court challenges to have little or no effect on stock markets. Immediate concerns though will be the content of the next fiscal stimulus package. With the Democrats controlling Congress and the Republicans controlling the Senate, how diluted will the economic rescue package be? Longer- term concerns will be the rising polarisation and prejudice, which could risk damaging US growth and hamper plans on achieving a sustainable fiscal position. Monetary stimulus was also delayed, with the US Federal Reserve deciding to maintain course against a background of political uncertainty.
In the UK though, monetary stimulus was increased. Against the backdrop of the second national lockdown, the Bank of England’s Monetary Policy Committee met to agree to keep interest rates on hold at the historically low level of 0.1%, and not stray into negative territory. However, it did decide to increase its quantitative easing programme by a further £150 billion, to provide stimulus during this second round of lockdowns. This was joined by the Chancellor, Rishi Sunak, announcing that the government’s furlough scheme would be extended beyond the lockdown period to March 2021.
With the UK facing rising COVID-19 cases initiating a second period of lockdown, and an uncertain Brexit, it was essential that both monetary and fiscal stimulus responses were strong and co-ordinated.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 9th November 2020.
The World In A Week - The Final Countdown
The weekend saw Boris Johnson announce a four-week national lockdown to try and curb the number of hospital admissions and avoid the NHS becoming overwhelmed. The timing of the national lockdown has been questionable since the UK has been a late mover, with most other major European countries already in a lockdown phase again. All non-essential shops and leisure activities will be forced to close but the decision to keep schools, colleges, and universities open has faced significant backlash, although closure would cause long-term harm for children and students’ education. The Cabinet Office minister, Michael Gove admitted that the national lockdown could be extended beyond its four-week period if the rate of transmission does not fall sufficiently.
Since this is the second national lockdown, we already know what to expect and what is to come, so the transition is expected to be much smoother. The job retention scheme has been extended during this month-long lockdown with employees able to receive 80% of their wage based on their current operating hours, however businesses are still facing rent and rates pressures.
Elsewhere, the US Presidential Election is entering its final stage, as Americans vote tomorrow. According to the latest polls, Democratic candidate, Joe Biden is in the driving seat over the incumbent Donald Trump. Ninety-five million Americans have already voted via post, which equates to 70% of the voting turnout in 2016, hence a much higher voting turnout is expected for this election and polls might not be as accurate. This has been the most expensive presidential election on record, with spending already at $14 billion.
The ongoing Brexit negotiations also enter their terminal phase with the rights to Britain’s fishing waters still in dispute. Chief UK negotiator, David Frost has been reluctant to concede the UK fishing territory since this is a significant source of income for domestic fisheries and the UK are justified to demand full jurisdiction on fishing in British waters despite EU pressures.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 2nd November 2020.
The World In A Week - Wave Motion
Markets had a little bit of a wobble last week, with the MSCI All Country World Index of global equities falling by -1.1% in Sterling terms. The best performing markets were in the Emerging Markets and Japan, which posted small positive gains. This was, however, offset by falls in the US and Continental Europe. Within Fixed Income, High Yield Bonds managed to rally despite the wider risk-off mood, while Global Treasuries and Investment Grade Bonds posted losses.
In the forthcoming US Presidential Election, polls have been pointing towards a “Blue Wave” whereby the Democrats would take both the presidency and both houses of Congress. Markets believe this would result in larger stimulus spending, higher inflation and higher interest rates. This has seen a recent pivot towards parts of the market that have been unloved for quite some time, namely Value stocks, Small Cap stocks and away from US Treasury Bonds. The persistent outperformance of US Large Cap Tech stocks may end following a Biden victory, as the Democrats are likely to call for increased taxation and regulation.
The other wave that markets are currently preoccupied with is, of course, the second wave of the Coronavirus pandemic which is sweeping Europe. France is facing up to 100,000 cases per day, and Italy and Spain announced sweeping additional restrictions on their populations on Sunday, in an attempt to get on top of the virus’s spread. These developments, among many others, affirm our belief that Continental European shares are relatively unattractive versus those in Japan and the Emerging Markets.
In better news, there have been positive developments in both the Oxford/AstraZeneca vaccine trial (which produced a robust immune response in elderly people) and the Pfizer vaccine (which is progressing for emergency approval from the FDA in the US). These developments could have big market impacts, and we feel we are well positioned for such opportunities. When navigating across a sea of choppy waves, investors would do well to look to the far-off horizon for stability… and try not to get seasick.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 26th October 2020.
The World In A Week - Record Breakers
There was a big focus on data for the UK last week, with unemployment and growth numbers being published. The UK unemployment rate for June was reported at 3.9%. This may prove to be artificially low, as UK employment is being supported by the furlough scheme. The coming months will be more insightful for the UK’s unemployment scenario, as the furlough scheme is gradually being phased out.
The UK growth data for the second quarter of 2020 saw GDP drop by -20.4% quarter-on-quarter. This has the dubious honour of breaking the previous record of -2.7% for the first quarter of 1974. It also means the UK is now officially in a recession with two consecutive negative quarters.
All of this was known and actually slightly better than anticipated; the Bank of England had forecast a deterioration of 25%. The main driver of the decline was the Service sector - with Accommodation and Food Services the hardest hit dropping an astonishing -87% quarter-on-quarter. It is little wonder then that the ‘Eat Out to Help Out’ scheme was introduced this month.
Growth is expected to rebound for the third quarter though, but it will be some time before it returns to levels we saw at the end of 2019; the Bank of England’s forecast is not until the end of 2021. Even with a positive outlook for the next three months, there are still considerable risks to the recovery for the UK; a widespread second wave of the virus, consumer sentiment changing to a more cautious approach and the unwinding of the furlough scheme all pose potential threats.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 17th August 2020.
The World In A Week - M&A Is The Way
Mergers and acquisitions activity saw a significant resurgence since the pandemic halted the economy back in March. The ability to complete transactions on a non face-to-face basis has not proved to be an issue with eight global deals of more than $10bn having been wrapped up in the last six weeks. This includes many predatory buyouts of poorer performing entities but has also included diversification-based deals as companies gear up for an imminent economic downturn. Private equity appears to be the predominant source of funding with TowerBrook Capital Partners recently acquiring Azzurri Group who run the Zizzi and Ask high street restaurant chains. The retail sector has taken a huge hit during the pandemic, with chains unable to pay rent as cash flows have been squeezed. The high street is expected to shrink as we move into a new era of consumer behaviour and spending patterns.
Last Friday saw the Trump administration sanction eleven Chinese and Hong Kong officials in a response to China’s new security law. US companies have also been barred from doing business with major technology Chinese companies and this has derailed the planned trade collaboration between the two largest economies in the world. Both parties have declared their political messages with a recommendation for the de-listing of all Chinese stocks from US markets. Trump has also stated that the US will block China’s WeChat, ultimately eliminating the major forms of social media communication between the nations.
The return to normality has been supported by the ‘Eat Out to Help Out’ scheme which offers a subsidy of up to a maximum of £10 per diner to dine in at restaurants every Monday, Tuesday and Wednesday from the 3rd to 31st August. The first week of the scheme has seen a 19% rise in footfall in UK regional cities with the hope that it can kickstart spending again to support the recovery of the hospitality sector.
The World In A Week - Will The Year End In Tiers?
A fresh round of vaccine optimism underpinned another strong week for global equities with benchmarks hitting fresh new highs, including the Dow Jones Industrial Average crossing the 30,000 points threshold. The UK has secured another 7 million doses of the Moderna vaccine, which takes the total to 357 million doses of vaccines across 7 different providers. This is the equivalent of providing enough vaccine for 3.5 million people.
As the UK is set to phase out of its month-long lockdown, new tiers have been established which see much of the UK either remain or fall into tighter restrictions as we head into the festive period. Most of the North has been placed in tier three with London being in tier two.
Meanwhile, Chancellor Rishi Sunak presented the country’s latest spending forecasts with underlying debt set to rise to 109% of gross domestic product (GDP). The net debt as a percentage of GDP of the UK government was 83.9% in January 2020; however, given the public outcry for business loan support and the furlough scheme, this value has peaked to 100.8%. Sunak foresees a rise in the unemployment rate to 7.5% and a forecasted yearly GDP growth of -11.3% for 2020. In 2008, the unemployment rate spiked to 8% of the working population and currently sits at 4.8%. This figure is masked by the furlough scheme that came into effect in March, which has supported workers’ incomes as business functionality grinded to a halt.
Sunak also suggested that house prices would fall in 2021 and 2022 as income support schemes and the stamp duty holiday would be pared back. Housing activity has surged in recent months as buyers seek to profit from the stamp duty holiday which is set to finish at the end of March 2021. The average asking price has increased by 5.5% compared to a year ago with the number of sales rising by 70%. This has been fuelled by a greater savings rate as a large proportion of the workforce has shifted to working from home, benefiting financially from reduced commuting costs. Inner London house prices fell per the House Price Index data, however outer London prices grew. Pre-pandemic, a house could be purchased using a 5% deposit. However, this has surged to at least 10% as mortgage lenders are wanting more assurances, given the surge in demand and inherent risk.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 30th November 2020.