Oct 19 2020

The introduction of the tiered lockdown system across England last week did not go smoothly as those areas moving into the strictest ‘Tier 3’ restrictions pushed back on the plans. 

Talks with Greater Manchester are still ongoing as Mayor Andy Burnham has accused the Government of treating the region as a ‘sacrificial lamb’. A move to the highest tier would result in all bars and pubs that don’t serve meals shutting, and a ban on households mixing both indoors and out.

In Wales, the tiered system does not apply but various regions are subject to their own specific local restrictions. The First Minister, Mark Drakeford, is expected to announce a decision on a ‘fire break’ lockdown on Monday 19th October, which would run for 17 days from 23rd October to 9th November, with all but essential retail outlets closed. At the moment it is unclear what support would be given to workers and businesses if this were to go ahead.

Data from the Manchester area supports Burnham’s stance, and suggests that the 7-day moving average of new cases has been declining steadily from a peak on 30th September. Professor Carl Heneghan of the Centre for Evidence Based Medicine tracks the recent rise in cases to the return of over 70,000 students to the city, and notes that new cases related to the University peaked on 2nd October and have fallen by more than 75% since.

Furthermore, while hospital admissions from the community to the NHS Manchester University Trust have risen to 12 per day from 8 the previous week, data from the Secondary Uses Service repository for healthcare data in England show a dramatic reduction for respiratory condition admissions compared with what we would normally expect at this time of year: less than 60% of the four year average. 

As always, proper context for the mountain of Covid data is incredibly important, but particularly now as we move into the winter months traditionally associated with a general rise in respiratory infections. Should Covid be no different to this norm and our governments continue to intervene with such low thresholds and high sensitivities, then we risk an endless cycle of closing and opening society, with all the unforeseen consequences that would bring. 

Global news

China has become the first major economy to return to its pre-virus growth path, thanks to its rapid containment of Covid and effective stimulus response. After a sharp contraction in Q1, GDP rose month-on-month in Q2 with growth extending in Q3 with a 4.9% year-on-year rise, driven by robust investment and exports. Previously softer consumer spending also accelerated, with retail sales rising by 3.3% in September from a year earlier. All of this has reassured markets that the recovery is on track:

In Pound terms, Chinese equities have been one of the strongest performers this year, rising by more than 26% through 2020; far above the US S&P 500’s 12.2%, rewarding investors who shifted their capital eastwards. Valuations are starting to look stretched but remain well below extremes seen in 2015, with the market now much more globally integrated and better supported by foreign buyers.

During the week, it was Asian and US equity markets that provided the only sources of positive return, with the MSCI Asia ex Japan index rising by 0.81% and the S&P 500 index rising by 0.75%. Despite rallies late in the week, UK and European equities lagged with losses of between 1.1-1.6%. Brexit talks were again fraught with both sides accusing the other of various improprieties.

Boris and Brussels

Boris Johnson seemed to take a hard line in telling the EU’s Michel Barnier that there was ‘no point’ in him coming to London to continue talking unless Brussels adopted a ‘fundamental change of approach’. As before, this still seems like brinkmanship as negotiations are continuing.

In a reversal of last week, fixed income safe havens found popularity with UK Gilts and index-linked Gilts rising strongly by 1.7% and 2.7% respectively, with the latter boosted again by a falling Pound. Higher risk, lower credit rated bonds fell slightly and after sharp falls on Tuesday, gold and silver prices were broadly flat.

This week, we await further news on the myriad of important geopolitical ongoings that we expect to move financial markets. Perhaps most relevant today, the ever-fluctuating sentiment around a new US stimulus package has swung back to ‘positive’ again over the weekend, and should genuine progress be made on this, we would expect a positive response from risk assets.

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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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