Aug 03 2020

Last week a new partial lockdown was imposed on parts of northern England and as many as four million people in Greater Manchester, Lancashire and parts of West Yorkshire are now unable to meet people from different households indoors.

The Prime Minister also announced a pausing of lockdown easing. Bowling lanes, casinos and ice rinks will not open as planned, while certain high contact beauty treatments will remain against the rules. Wedding receptions of 30 people are again on hold until the next review on 15th August.

The Government’s ‘eat out to help out’ launch has gone ahead regardless, and those clinically vulnerable people who have been shielding since March are now allowed to return to work.

There are doubts over the rationale for new lockdowns. Professor Carl Heneghan, director of the Centre for Evidence-Based Medicine at Oxford University, has shown that the recent rise in positive cases is skewed by delayed test results and a lack of accounting for a large rise in numbers tested. Once these are controlled for, there is no rise in July. There are further issues around the extrapolation of small datasets, and in the accuracy of the COVID tests themselves.

Thankfully, the number of fatalities in the UK continues to fall, with the 8 being recorded on Sunday 2nd August taking the 7-day moving average down to 64, with daily new cases remaining at around the 750 mark. Domestic activity levels continue to rise, too, with the chart below showing restaurant bookings still rising sharply following July’s reopening. This is backed up by much anecdotal evidence of consumers’ voracious appetite for eating out which we hope will be further boosted by the government’s scheme through August:

Globally, the US reported a fall in GDP of 9.5% in the second quarter; its worst correct on record for the period, whilst the Eurozone’s GDP fell by 12.1% during the same time frame. Per the chart below, the consensus expectation for the UK’s Q2 GDP currently sits at -18.3%; amongst the worst in the developed world:

In markets, equity markets ended the week with mixed results as the US tech giants all reported corporate earnings above expectations, while the US Congress failed to make meaningful progress on another coronavirus relief bill as billions of dollars of US aid expired on Friday 31st July. Other economic datapoints were mixed: measures of manufacturing activity and home buying increased, though new weekly jobless claims rose for the second week in a row by more than 1 million.

The Pound rose in value during the week against most other currencies, meaning overseas equity holdings were negatively impacted. In Pound terms all major regions fell in value, with Asian and broad Emerging Market equities performing best with losses of 0.48% and 0.85% respectively. The US was close behind with a loss of 0.86%, again driven by big tech outperformance.

Other developed markets were further back, with the strengthening Pound hurting the FTSE 100 as it fell by 3.68%, while European equities fell by more than 4% as macroeconomic data and corporate earnings data underwhelmed.

Safe havens were bid for yet again; UK Gilts rose by 0.58%, Index-Linked Gilts by 1.17%, and precious metals prices rose strongly, with gold and silver up by 0.51% and 3.26% in Pound terms respectively – our thoughts on this asset class remain unchanged as per last week.

Looking forward, August has traditionally been a poor month for risk assets, indeed the worst over the last decade for global stocks, as the table below shows. Many commentators have little time for market seasonality arguments, for good academic reasons, but perhaps there is a nagging behavioural persistence amongst market participants that may make them press ‘sell’ that much quicker should bad news appear:

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Andrea Barker
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