While news in the US is looking better on its overall number of COVID-19 hospitalisations, Europe continues to see cases move in an upward direction. This led to the UK announcing quarantine restrictions on individuals returning from a number of countries on the continent, including France, Malta and The Netherlands.
However, no progress was forthcoming from the US senate as the Democrats and Republicans remain far apart on key issues. Joe Biden named Kamala Harris as his Democratic running mate for the November 2020 elections.
The US decided to hold off the previously threatened tariff hike on €7.5 billion worth of European goods1, although there were some additions to the tariffs currently in place, including French and German jam.
The US also decided not to further escalate trade tensions with Beijing, where the authorities appeared to take more of a conciliatory approach following the rhetoric of the week of 3 August.
On the economic data front, the US initial jobless claims came in 963,000 on Thursday 13 August2, marking the first time they came in below the one million threshold since March.
We also had labour market data from the UK, which showed that 730,000 individuals have lost their job since March3, while the Eurozone reported that 5.5 million individuals became unemployed in Q24. Data released last week showed that the UK economy suffered the worst Q2 slump across Europe, with GDP falling by over 20%3.
Meanwhile, retail sales disappointed in China and the US, but were better in the UK, rising by 3.2% in July3 compared to the same month in 2019.
A more positive tone also surfaced on the Brexit front, with the UK’s chief negotiator, David Frost, tweeting that “Our assessment is that agreement can be reached in September and we will work to achieve this if we can”. Meanwhile, the new Irish Prime Minister, Micheál Martin, also said that there was a “landing zone” for a deal ahead of talk this week5.
The week of 10 August saw equities hold steady, with the MSCI AC World up +1.1% in Sterling terms and +1.4% in US Dollar terms. For a change, the UK (+3.0%) and Japan (+3.6%) were the best performers, while Emerging Markets (+0.4%) and the US (+0.4%) lagged.
Cyclicals outpaced defensives, with industrials (+3.0%), energy (+2.5%) and financial services (+2.1%) outperforming, while IT was flat and communication services down -0.3%. This represented a slight reversal in market leadership and showed through in value stocks outperforming their growth peers – a pretty rare event in today’s markets.
While equities were firm over the week, bond prices were generally heading south as we continued to see bond yields rising. Part of this might be explained by the US jobs numbers, which were not as bad as expected. However, part might be due to valuations. Given how low bond yields are, it was inevitable that at some point demand would back up a little.
The rise in real rates also took the sheen off gold, which had been getting lots of attention of late. This, in turn, may be due to the opportunity cost of holding gold rising slightly, although the market might also have, in part, been reacting to the price of gold increasing by too much too quickly.
Our equity holdings were a mixed bag given we are underweight financials and cyclical value stocks. The fact that Emerging Markets also underperformed their developed peers also held us back over the week.
We saw solid performance for our fixed income, counterbalancing the slight underperformance on the equity front. Although investment grade investments followed the downward path of government bonds, all our short duration investments outperformed.
Turning to other areas of the portfolio, we saw more favourable investor reaction to the reinstatement of a dividend for the BMO Commercial Property Trust and its announcement of better than expected Q3 rental collection figures. Our investments in care homes remain steady.
August is a significant month for dividends, with most of the investment trusts we own paying out either monthly or quarterly dividends in this month and, as such, clients will see some income hitting their accounts.
It’s a fairly quiet calendar for markets for the week of 17 August as the summer progresses.
In terms of the economic data, the initial purchasing managers’ indexes published on Friday 21 August will be a key indicator as to how the global economy has performed into August.
Meanwhile, the Federal Reserve and the European Central Bank release the minutes from their most recent meetings. We also see the tail end of the earnings releases with 18 S&P 500 company’s reporting6.
Last, but not least, the politicians will attract attention given the Democratic convention in the US, as well as the next round of UK-EU trade negotiations.
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Clients of Nedbank Private Wealth can get in touch with their private banker directly to understand how their portfolios are responding to market events, or call +44 (0)1624 645000 to speak to our client services team.
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Sources: Nedbank Private Wealth and (1) US Trade Representative; (2) US Department of Labor; (3) Office for National Statistics; (4) Eurostat; (5) Reuters; and (6) Bloomberg.
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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