Sep 02 2020

Tuesday 1st September saw around 4 in 10 schools in England fully reopen for the first time since March, with the remainder opening by the start of next week.

Government messaging around the return to school has become increasingly strident in the lead-up to September, which comes as survey data suggests that many parents are reluctant to send their children back.

The Centre for Economics and Business Research (CEBR) has said that the full reopening of schools could deliver a £70bn – around 3.3% of GDP – boost to the economy as parents are freed up and productivity rises. Parents will face fines if they do not send their children back to school despite fresh calls for an ‘amnesty’ for families who have concerns about coronavirus safety.

The Government has also been at pains to highlight the low risk that the virus poses to children. A study led by Liverpool University and published in the BMJ last week found that just 651 of the 69,516 patients admitted to hospital with COVID symptoms were under-19, with 42% of them having serious existing underlying medical conditions. Six of this cohort sadly died, all of whom had severe, existing comorbidities, but in the words of one of the report’s authors, ‘the absolute risk of being admitted to hospital is tiny’, and the risk of ‘severe disease and death is vanishingly rare’.

New case levels have risen in the UK with the 7-day moving average currently sitting at 1,322, but there has been no discernible rise in the number of coronavirus hospital patients per the chart below, while fatalities are extremely low; the 7-day moving average is at 10, with just 2 deaths reported on Monday 31st August:

Globally, Japan’s Prime Minister Shinzo Abe resigned due to health reasons last week; a decision that surprised markets, though his struggle with ulcerative colitis has been well known, and indeed had previously led to his resignation as Japan’s PM in 2007. Abe’s near 8-year tenure had been the longest of any post-war leader in Japan, besting the record of his great-uncle Eisaku Sato who served from 1964-1972. He has no clear successor, with his resignation expected to set off a heated contest for the premiership at a time when Japan is struggling from the delayed 2020 Olympics.

In the US, the main talking point was the unveiling of a new approach to setting US monetary policy by Federal Reserve chairman Jerome Powell. The central bank will now target inflation that averages 2% over time, a step that implies allowing for price pressures to overshoot after periods of weakness. It will give the Fed greater flexibility to let the job market run hotter and inflation float higher before taking action as it may previously have done, with messaging abundantly clear that this will be allowed to happen.

In response to this announcement, despite being widely expected, US bond yields rose, and the US Dollar dropped in value versus all major currencies but particularly against emerging markets; the South African Rand and Brazilian Real rose by 3.47% and 3.20% respectively against the Dollar. The Pound also had a strong week, rising by 1.88% against the Dollar, 1.43% against the Yen and 0.90% against the Euro.

Despite the rise in US bond yields, US equities had yet another strong week, with the S&P 500 rising by 1.29% in Pound terms. The index’s 7.3% rise during August is its largest gain during that month since 1984 and has seen it make new all-time highs. Emerging market equities also performed well with the broad MSCI Emerging Markets index rising by 0.77%. Asia was the best performing region again with a 1% gain.

Developed markets were generally negative for the week, with the FTSE 250 proving an exception, benefitting from the stronger Pound. The index rose by 1.23% whilst the large-cap FTSE 100 index fell by 0.63%. European equities fell by 0.07% and Japanese equities by 1.26%, negatively impacted by the Prime Minister’s resignation.

Government bonds performed poorly as risk-on sentiment persisted, with high yield credit outperforming. After another wobbly start, precious metals prices began to climb precipitously again, with silver ending the week up 3.4% and gold by 1.43%.

This week will see the release of many important data points including Eurozone inflation data, final business surveys for August, and perhaps most importantly August job market data for the US. All of these will be instructive in gauging the currently state of affairs, with a continued improvement expected to prove constructive for 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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Andrea Barker andrea.barker@fairstone.co.uk / Tel. +44 (0) 191 519 6243