Jun 29 2020

We start the week with more positive news surrounding the decline of COVID-19 cases as the UK recorded 901 new cases and 36 associated deaths on Sunday 28th June, with both trends continuing downwards. The seven-day moving average for fatalities currently sits at 131, down from a peak of 943 in the middle of April.

The Prime Minister also outlined further changes to lockdown measures last week. The good news is that from Saturday 4th July, pubs, restaurants and hairdressers (but not nail bars or beauty salons) will be able to reopen, providing they adhere to COVID guidelines, and two households will be able to meet up in any setting with social distancing measures.

Some leisure facilities will also start to reopen, including outdoor gyms and playgrounds, cinemas, museums, galleries and theme parks. Perhaps most importantly, to try and maximise the potential benefits to this stage of the lockdown loosening, guidance on social distancing has now shifted to the ‘one metre plus’ rule from the previous two metres, to allow for potentially greater levels of activity.

Many businesses will remain closed, voluntarily or not, and risks remain that normalisation will not come quickly enough. Criticism still surrounds the inconsistency of the Government’s messaging: pubs will open but schools will not, cinemas will open but theatres, concert venues and conference centres will not for live performances.

The Government also announced that the daily press conference on 23rd June was the last one of its kind, with further broadcasts to only occur when there is significant new information to update the public on. This is part of an attempt to refocus minds on other issues, not least fulfilling the promises in the Conservative manifesto.

In markets, the week started on a positive note as important monthly surveys tracking manufacturing and services business sentiment increased sharply from the previous month. These are ‘flash’ estimates prior to the full data release in the first week of every month and pointed to a tentative expansion in some European countries in May. Most results pointed to continued contraction, but on a significantly reduced basis from April.

This positive sentiment unwound throughout the week as first, trade tensions arose between the US and Europe, to be followed by worsening coronavirus infection data from certain US States. The first chart below shows the seven-day moving average of new cases and deaths in the US as a whole, with a marked divergence between the two data series. Case numbers have begun to rise sharply but deaths are still resolutely falling. Of course, they could eventually start to rise with a lag, but possibly explanations for the divide include a fall in virus virility, better treatment and those infected being less susceptible to severe symptoms or indeed death:

Affected States are taking action. Whereas New York has allowed restaurants to resume sit-down service with outdoor-only seating, Texas ordered taverns to close over the weekend. Texas, along with Arizona, California and Florida currently account for around as many new cases as the rest of the country put together.

This led to a largely negative week for equity markets, with only Asian and Emerging Market equities eking out small gains of 0.86% and 0.22% respectively, again proving to be safe havens in a worsening COVID news flow environment. Japanese equities also performed well in relative terms, falling by 0.22%, with Europe further behind on -1.36%. The US suffered most over the week given the circumstances with the S&P 500 falling by 2.49%.

Safe havens proved attractive, with Gilts rising by 1.2% and the prices of gold and silver (in Pounds) also rising strongly by 1.94% and 1.19% respectively.

The developments in the US will be of particular importance to watch, especially with regards the divergence between new cases and fatalities. Important economic data is also released this week on business sentiment and US jobs that will no doubt prove important in determining the direction of travel in the short term.

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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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