Sep 07 2020

Economic data released last week was positive but continued to point to a plateauing in the global recovery.

The Global Composite PMI index – a combination of global manufacturing and services business surveys – rose to 52.4, indicating an expansion of activity, though this headline level masked wide regional divergences. Countries that have been hit hardest economically rose strongly, particularly on the manufacturing side, while others stagnated; for example, the Eurozone’s Manufacturing PMI index actually fell during August, driven by worsening data in France and Spain.

As the chart below from Bloomberg shows, using alternative measures of economic activity the rebound has slowed over the last month, as the easy gains have been made. Nevertheless, we believe that the global economy should continue to improve, unless governments resort to widespread and severe lockdowns again as they did earlier in the year:

UK economic data continues to show improvement, with ‘final’ PMI index data for August largely confirming the ‘flash’ data reported a couple of weeks ago. The Manufacturing sub-index rose at its fastest pace since 2018, while the Services sub-index, despite missing its flash estimate, rose at its fastest level since 2015. The Government’s ‘eat out to help out’ scheme came to an end on August 31st, with the Treasury revealing that more than 100 million claims were made at a cost of £522 million. It certainly served to boost restaurant booking numbers, but it remains to be seen what the level of activity will be through September:


Confusion reigned once more last week however as the home nations took differing views on quarantine measures for returning holiday-goers, with Portugal and Greece in the firing line again. The Transport Secretary Grant Shapps decided not to impose quarantine restrictions on those travelling to England from Portugal, because of evidence that rising infections in the country were partly due to increased testing, while Greece remains on the exempt list.

Scotland and Wales have decided to impose a 14-day quarantine on travellers returning from Portugal, and in addition, if you’re returning to Scotland from Greece you must quarantine, but if you’re returning to Wales, you’ll only need to quarantine if you’ve been to Mykonos, Zakynthos, Lesvos, Paros and Antiparos and Crete.

It is this consistently confusing messaging that has reduced confidence in the Government’s overall handling of the crisis – something that is much needed as Brexit negotiations resume again this week in London. Both sides have bemoaned the lack of progress that has been made, with the UK stepping up preparations for the trade talks to fail. Media headlines over the weekend suggested that the EU’s chief Brexit negotiator Michel Barnier is set to be sidelined by EU leaders in a bid to get a breakthrough in negotiations before the soft deadline of 31st October.

Elsewhere, the US’ August jobs report attracted much attention as normal, with the impact broadly positive. 1.37 million jobs were added, and the unemployment rate decreased to 8.4%, down from 10.2% in July. One sixth of these new jobs were temporary workers added for the decennial census, according to the Labour Department, and some commentators worry (slightly counterintuitively) that the continued positivity will hobble chances of a further stimulus package.

Equity markets were largely negative in Pound terms this week, despite the Pound itself falling in value versus most major currencies. Latin American equities rose by 1.53% and Japanese equities by 0.70%, with all other major regions in the red. Emerging market equities fell by 1.04% with the other major developed markets arranged behind; the UK lagging once more with drops of 2.40% and 2.68% for the FTSE 250 and 100 indices respectively.

The major talking point was a sell-off in richly valued US technology stocks towards the end of the week, with the S&P 500 index falling by 3.5% on Thursday alone – its biggest drop since early June – amid declines in Apple, Microsoft, Amazon and Facebook. The Nasdaq 100 sank by 5%; its largest decline since March. The falls appeared to stem from concerns that the recent run-up in these shares was less tied to positive investor sentiment and perhaps more to outsized options trades.

It remains to be seen if these downward moves are temporary, serving to blow off some of the froth in the most crowded names, or heralding a turning point in the market. As with all such events, amidst enormous uncertainty, diversification remains vitally important.

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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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