Week ending 17th July 2020.

World Markets at a Glance

It was very much a week littered with news, data and central bank meetings. This flow of information saw markets have their fair share of volatility, yet the majority have ended the week in positive territory. This is typical of what we expect to see from markets over the coming months.

Early in the week UK Prime Minister, Boris Johnson, announced that it will be compulsory for individuals to wear a face covering in shops in England from Friday 24 July. While there was and is still confusion over why shop staff are not required to wear face masks, and why it took the government so long to impose this measure, this mandatory step will likely aid in staving off a second wave of the virus. This confidence was echoed in Boris Johnson’s address today (Friday 17 July 2020), where he effectively reopened public transport for regular use by the general population, albeit with guidelines remaining in place. He also went on to say that it was his “strong and sincere hope” that social distancing would end by Christmas, while also introducing new powers for local authorities to impose local lockdowns, and also injecting a further £3billion in support to prevent a second wave of the virus.

Midweek we saw two key central banks have their respective policy meetings, the European Central Bank (ECB) and the Bank of Japan (BoJ). Both banks announced little changes to their policies. The ECB president, Christine Lagarde, was cautious and accommodative, while the BoJ Governor, Haruhiko Kuroda, was more direct in stating that they believe the worst of the pandemic is over but the recovery would be slow. With this in mind, it seems likely that Europe and Japan will deviate in their paths to recovery. With Japan having been in deflation for around two decades prior to 2013, they are fighting a more long term and structural battle against deflation, and as such their current policy has led the BoJ to owning the lion’s share of Japanese Government Bonds. As such, primarily due to liquidity, the BoJ is now having to purchase global equities in order to continue loosening liquidity. Whereas the ECB is in a very different position, in that it is not stuck in a stagnant wage growth cycle, nor has it dried up its access to the bond market. Consequently, the ECB is able to expand out its asset purchase programme in a much more targeted manner. Today saw the beginning of a two day meeting of the EU leaders which should give further support to the ECB’s measures.

On Tuesday we saw some positive safety trials of a coronavirus vaccine from Moderna that saw their stock surge as much as 18% intraday. While this is a positive step, the end of the week was marred with allegations that the Russian Intelligence agency hacked international research centres for access to vaccine research. While it is easy to appreciate what is at stake for the Pharmaceutical and Biotechnology industry, it is hoped that this protectionism of intellectual property won’t hinder progress, with this coming in a week that saw Brazil break through 2 million cases of the virus, and India break through 1 million!

In terms of data, this week was littered with economic releases such as Chinese trade data and GDP, European Inflation, and US Industrial production and Inflation, all of which performed extremely strongly. However, the weaker than expected UK GDP data was a little more sobering and serves as a reminder that while the global economy is on a journey to recovery, it will take time, and is why we have eluded to the V-shaped recovery looking more like a ‘Nike Swoosh’!

Next week there are multiple data sets that are due out with some of the more significant ones being the weekly US jobless claims data and Euro Area Consumer Confidence (for July) both due out on Thursday (23 July 2020), and the UK’s PMI (Purchasing Managers’ Index) for the month of July as well as Retail Sales for June both due out on Friday (24 July 2020).

For anyone who is interested in astronomy, NASA discovered another constellation in the night sky this week. Interestingly, due to the nature of this discovery it has resulted in a thirteenth sign to the Zodiac. The star sign ‘Ophiuchus’ (snake bearer) will be the sign for individuals born between November 29 and December 27 and has shifted the dates for all other signs as a result!

Jonathan Wiseman, Fund Manager