Week ending 12th June 2020.

World Markets at a Glance

As Marie Curie once said “I was taught that the way of progress was neither swift nor easy”, and that is also true for investing as equity markets have this week reminded us that the path for global equities is never smooth or easy – as you can see from the accompanying table, global equity markets ended the week significantly lower due to fears there will be a second wave of coronavirus cases.

Unfortunately, as we previously highlighted, although some US states, such as Arizona and Oklahoma, have seen an uptick in coronavirus cases, on a national level cases continue to fall, albeit slowly.  However, whether or not we are seeing a second wave of coronavirus infections, equity markets are now starting to price in the fact that we will.

Equity markets often tend to overshoot on both the upside and downside and while this week may have brought back the unpleasant memories from the February and March equity market volatility, we actually feel that this week’s falls simply reflect the fact that the recent gains got a little overheated.  As such we certainly don’t believe that this week’s falls signify a new downward trend – and as a consequence, we don’t currently see any reason to panic as there has not been a fundamental shift downward.

To us, this was evident because some of this week’s biggest fallers have been those stocks that have recently rallied strongly, but are still very much exposed to the ongoing impact of the coronavirus lockdown restrictions, such as IAG (the owner of British Airways); easyJet; Carnival Cruises; and InterContinental Hotels.

This week’s economic news was dominated by Wednesday’s (10 June 2020) Fed monetary policy meeting, where the Fed’s Chair, Jay Powell, filled us with confidence that the US central bank will continue to provide whatever stimulus is needed to support the economy until it recovers.

Elsewhere, while UK GDP data grabbed today’s (Friday 12 June 2020) headlines with a contraction of 20.4% in April, it didn’t actually tell us anything we didn’t already know – i.e. the economy has hit a brick wall.

However, there was plenty of economic data this week that encouragingly showed green shoots are starting to appear now that the coronavirus lockdown restrictions are starting to be lifted.  For example, today’s University of Michigan Consumer Sentiment Index showed confidence improved for a second month to 78.9 from 72.3 in May, while its Expectations Index (which shows how consumers view prospects for their own financial position and that of the general economy over the long-term), jumped to 73.1 from 65.9, which provides us with comfort that consumption behaviour is unlikely to see any permanent damage from the coronavirus outbreak and rise in unemployment.

Looking ahead to this coming week, from the UK we have employment data (unemployment rate and weekly earnings); CPI inflation; retail sales and a BoE monetary policy meeting.  From the US we have retail sales; industrial production; housing starts; and of course the weekly jobless claims; while from China we have industrial production and retail sales data.

Investment Management Team

Monday 15th June 2020

Global equity markets have started the week lower thanks to concerns over a resurgence of coronavirus – as we write, the FTSE-100 is down just over 100 points, or 1.70%.

However, we believe that the market’s focus is currently wrong and should be on the economic data releases rather than the daily infection count – and as such equity markets could quickly stabilise and start recovering.

Obviously, the Chinese announcement over the weekend that around 50 new coronavirus cases were recorded at a food market in Beijing is disappointing, and while we accept that there has been an increase in coronavirus cases in some countries and US states, we also need to put that into perspective as the volume of testing around the world has also increased dramatically – so proportionally we are still seeing a decline in infections.

Unfortunately, this has all overshadowed some positive economic data out of China overnight which confirms that the Chinese economy is well on the road to recovery from the coronavirus outbreak despite weak global demand caused by the lockdown restrictions.

For example, the data showed industrial production rose by 4.4% and even though retail sales were still 2.8% lower in May than a year ago, this was a big improvement from April’s reading which showed a 7.5% decline – and it should be noted that some areas of the economy (such as cinemas) haven’t yet fully reopened.

Investment Management Team