Jun 15 2020

This week marks a real start in lockdown easing with the opening of non-essential businesses from today, which hopefully brings us a step closer to returning to normality.

Over the past week, both equity and fixed income markets were choppier, as some of the excess from the recent equity market rally was burned off and fears arose of ‘second waves’ in the US and parts of China.

Beijing shuttered the city’s largest fruit and vegetable supply centre on 13th June after a small number of cases were reported as having originated there. Interestingly, of the more than 500 samples collected from the centre, 45 people were found with Covid-19 but had no clinical symptoms. The city authorities will now test at least 10,000 people from the area

In the US, as we know, large parts of the economy have been reopened without fully suppressing transmission of the virus, meaning its recovery is more at risk of a renewed wave of infections. 10 States in particular, comprising 40% of the US population, have reported increasing rates of infection over the past few weeks, though not at levels commentators believe would require further lockdowns.

Meanwhile, economic data and policy are still positive and improving. Jerome Powell, the Chair of the US Federal Reserve, sent a powerful message on Wednesday that the Central Bank will continue pumping stimulus into the US economy until the labour market has fully recovered. Importantly he added that monetary policy would remain extremely loose for the indefinite future, with interest rates expected to remain at or near zero until the end of 2022.

The UK’s virus data continues to slowly improve, with 1,514 new cases and 36 deaths reported on Sunday 14th June. As mentioned above, non-essential retail will open this week for the first time since March, with businesses having installed ‘sneeze screens’ and sanitation stations to make shopping more hygienic. Whether customers will feel safe enough to return in large numbers will be of vital importance to a recovery; 60% of UK GDP is accounted for by consumer spending, whilst the retail industry generates around £400bn per annum.

In general, high frequency data points suggest recoveries across the world, though with differences in speed between countries. The two charts below show ‘recovery tracker’ indices for various developed and emerging market economies that combine data points from various aspects of economic activity, including: retail and recreation, driving and public transport use:

All countries appear past the worst, though the UK is a notable laggard amongst its developed market peers, having locked down later and moved out of lockdown very cautiously.

During the week, riskier assets fared worse than safe havens. Government bonds and precious metals performed well, whilst equity markets generally fell. This applied to currency markets too, with the likes of Japanese Yen (+3.53%), Swiss Francs (+2.39%) and US Dollars (+1.41%) all rising in value versus the Pound.

Within equity markets, the Japanese performed the strongest, rising by 1.27% in Pound terms, with Asian (+0.39%) and Emerging Market (-0.07%) equities not far behind. The UK again was at the bottom of the performance table, impacted by the weaker Pound and more negative sentiment; the FTSE 100 fell by 5.77% and the 250 by 6.30%. Europe did not fare much better with a loss of 4.57% and the US was slightly further ahead with -3.32%.

The atmosphere domestically and abroad remains febrile with further protests having occurred over the weekend. More negative sentiment has finally spilled into what were technically overbought equity markets, but as we have previously intimated, there may be a chance of increased volatility from here, as the relative speed and success of reopenings globally becomes clearer. Trends are still cautiously positive for now, but we remain watchful of any changes to this view.

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The value of investments may fluctuate in price or value and you may get back less than the amount originally invested. Past performance is not a guide to the future. The views expressed in this publication represent those of the author and do not constitute financial advice.

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For further information, please contact:

Andrea Barker andrea.barker@fairstone.co.uk / Tel. +44 (0) 191 519 6243