Markets saw a repeat of activity in the first week in of the month during the week starting 7 September, as investors remained risk averse.
With regard to the pandemic, the number of new cases in the European Union and UK surpassed that of the US on Thursday 10 September1 for the first time since the end of March. India, however, remains the global hotspot as the country saw over 95,000 new cases reported on a daily basis2 on four successive days. Meanwhile, the AstraZeneca/Oxford University clinical trials were suspended after a participant became ill due to the vaccine. Although its trials are now due to restart, it highlights how easily a planned distribution by the end of the year could be postponed3.
In the US, the publication of the consumer price index flagged that its basket of goods and services determining the cost of living rose by 0.4% month-on-month and 1.3% year-on-year. The increase was mainly driven by the high demand for used cars as consumers turn away from public transport to avoid contracting COVID-194. Meanwhile, the latest initial jobless claims came in higher than expected at 884,000, unchanged from the week before, and added to concerns that economic progress is starting to slow4.
Over the same period, Senate Republicans failed to push through their latest stimulus bill, which was voted down by Senate Democrats who argued that the package was too small. As such, it is unlikely that a stimulus bill will be voted on before the 3 November and the US election5.
In Europe, the European Central Bank meeting led to no announcements of a change in rates or the level of quantitative easing, although Christine Lagarde did signal in her subsequent press meeting that the central bank is monitoring the recent rise in the value of the Euro.
On the Brexit front, the UK’s release of its Internal Market Bill on Wednesday 9 September drew attention as an attempt to override key aspects of the signed withdrawal agreement and flout international law. As such, criticism of the UK was levelled both nationally and from the EU. Despite this dispute, trade negotiations continued over the week, although little progress is understood to have been made5.
The UK, meanwhile, struck a new trade deal with Japan on 11 September, which is expected to increase trade by £15 billion per year. The UK is also progressing conversations with more signatories of the Trans-Pacific Partnership, as well as Canada5.
In markets, it was a very volatile week for both currencies and equity markets, with the tech stock slide and Brexit the main drivers for the capriciousness.
As of day end on Thursday 10 September, world equities were up around +1.9% in Sterling terms, and down -1.3% in US Dollar terms, with the difference in performance due to the weakness in Sterling as it fell over 3% against the US Dollar.
The UK market, in local currency terms, was one of the best performing equity markets (4.07%) given the weaker value of Sterling supported the share prices of the more international companies listed in London, e.g. the FTSE 100 Index sees some 70-80% of its earnings from overseas. Year-to-date, however, the UK market remains one of the worst performing stock markets (down -19%). Europe ex UK (+5.88%) gained the most during the week, with Japan posting a +3.62% gain.
Growth stocks (+1.50%) underperformed value peers (+2.33%) for a second week on in a row, while IT (+0.65%) and the communication services (+0.76%) sectors were again among the worst performing sectors. The cyclical sectors of materials (+4.44%) and industrials (+3.32%) outperformed more defensive sectors, including utilities (+3.11%), consumer staples (2.93%) and healthcare (+2.77%). Energy stocks were weak reflecting the sharp decline in crude oil prices, which finished around 6% down, on the back of concerns that global demand will continue to remain weak, while crude oil inventories are increasing.
Within bonds, the risk-off environment meant high yield underperformed safe haven government bonds. US government bonds generated the highest return last week, as yields moved lower and volatility increased. Brexit headlines also weighed on UK credit markets, which underperformed last week.
Within equities, our more defensive bias meant our equity portfolio, overall, slightly outperformed over the period. While our exposure to the energy sector held performance back, our coverage of the consumer staples sector provided a cushion.
On the bonds front, our exposure to US government bonds was most beneficial for returns, and it was encouraging that most of our fixed income positions generated a positive return in a volatile week. The falling government yields also supported our global real estate investment trusts investment. And, although our local exposure through the BMO Commercial Property Trust was hampered by the Brexit news, this was offset by the return generated by our two holdings in UK care homes.
Our alternative investments were generally negative with the renewable energy funds reflecting the fall in energy prices. Set against this was a good week for Hipgnosis, which announced its acquisition of the Big Deal Music Group, a boutique US song company with a portfolio of 4,400 songs, including several of the most streamed songs of the last five years. The increase in staff from the deal will also help the fund generate more revenue from its catalogue, and which will be supported by the appointment of two senior executives from the music industry.
Central banks take centre stage in the week of 14 September. The key meeting to focus on will be that of the Federal Reserve on Wednesday 16 September. We also hear from the Bank of Japan, Bank of England and a number of Emerging Market central banks.
Japan’s new prime minister is likely to be Yoshihide Suga after his selection by his party to succeed Abe. His appointment will be confirmed if he wins the vote in the National Diet on Wednesday 16 September, as is likely the case.
Discussions linked to the OPEC+ meeting on Thursday 17 September will also be closely monitored.
Also on Thursday, we see the publication of another US initial jobless claims’ number, and which is hoped will not disappoint again.
We will see retail sales and industrial production numbers published in China and the US.
Last, but not least, attention will remain on the Brexit news flow, as the UK government’s Internal Market Bill is debated in the House of Commons.
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All figures are as of day end on Thursday 10 September unless otherwise stated. Sources: Nedbank Private Wealth and (1) John Hopkins University; (2) Hindustan Times; (3) US Bureau of Labor; (4) Bloomberg; and (5) Reuters.
Investments can go down, as well as up, to the extent that you might get back less than the total you originally invested. Exchange rates also impact the value of your investments. Past performance is no guide to future returns. Any individual investment or security mentioned may be included in clients’ portfolios. They are referred to for information only and are not intended as a recommendation, not least as they may not be suitable. You should always seek professional advice before making any investment decisions.
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