The week of 13 July saw positive performance for most markets, despite the backdrop of mixed news reports.
The bad news included the US recording more than 70,000 new coronavirus infections¹ on Thursday 16 July. It was an increase that was accompanied by a sharp rise in fatalities, in particular in Florida and Texas.
The good news came in the form of the results of a Moderna trial² where the vaccine produced an immune response, while the AstraZeneca-Oxford University collaboration has published its latest findings on the generation of antibodies and ‘killer’ T-cells (white blood cells) in The Lancet.
Economic data releases were led by US jobless claims³ which came in at 1.3 million, down by just 10,000 from the previous week. Against that backdrop, US retail sales rose 7.5% in June, while May’s data was revised to 18.2% from its initial 17.7% estimate⁴. The consumer price index (CPI) was 0.6% in the 12 months to the end of June³.
In the UK, the CPI inched slightly higher to an annualised rate of 0.6%, while the number of UK payroll employees fell by 650,000 in June versus March⁵. Gross domestic product (GDP) also disappointed as it rose by only 1.8% in May, which was much weaker than the 5.5% forecasted.
The EU recovery fund is set to be finalised after long negotiations with the frugal four². The Netherlands, Austria, Denmark and Sweden have agreed to €390 billion of the fund being made available as grants, with the rest being distributed as low-interest loans. The overall size of the fund and how the fund will control its spending have yet to be agreed, and talks restart on Monday 20 July.
Meanwhile, the European Central Bank² announced there would be no change to its base rates or the scale of its bond buying. Christine Lagarde confirmed that the emergency programme would use its full allocation, unless there was “a significant upside surprise”, given uncertainty continues to weigh on business investment and consumer spending.
China’s economy returned to growth in the second quarter², with GDP rising 3.2% versus the same period in 2019 on the back of a strong industrial sector. Consumer consumption, however, remains weak.
Tensions between China and the west continued to mount as the UK announced a ban on Huawei-supplied infrastructure for its mobile phone network⁶, and the US ended its special trading relationship with Hong Kong on Tuesday 14 July⁷. The Trump administration is also considering a sweeping travel ban for Chinese Communist party members to the US.
Last, but not least, OPEC+ members agreed on Wednesday 15 July to scale back its cuts from August, and increase production by two million barrels a day, which caused oil prices to inch slightly lower².
In the markets, the MSCI All Country World Index returned +1.19% in Sterling terms, and +0.88% in US Dollar terms. The best markets were Europe ex UK (+2.93%), the UK (+2.36%) and Japan (+2.54%). The US returns were lower (+1.14%), while emerging markets (-1.78%) and Asia ex Japan (-2.24%) were negative.
At a sector level, industrials (+4.23%), energy (+3.82%), materials (+3.57%), healthcare (+3.12%), financial services (+2.33%), utilities (+2.23%) and consumer staples (+1.60%) were positive, while real estate (-0.48%), consumer discretionary (-0.53%), communication services (-0.57%) and information technology (-1.22%) were negative.
Growth (-0.34%) was outpaced by value stocks (+2.90%) although the year-to-date gap remains sizeable, with growth posting +16.21% versus value’s -9.54% return. Small capitalisations (caps) stocks yielded +2.36%, ahead of their larger peers (+1.00%), while the year-to-date gap is reversed (-5.31% for small caps and +4.08% for large caps).
The largely positive performance in equities meant that apart from the emerging markets funds, our equity funds were also in the black. Fixed income allocations largely returned flat performances.
In line with the negative performance for the real estate sector, our property investments were either flat or in the red.
While the UK market was positive this week, it remains the weakest developed market and so far this year has returned -16.46% due to the impact of COVID-19 and as Brexit negotiations continue.
In the alternative space, there were two announcements of note.
The first is for the SQN Asset Finance investment. Following the managers’ full review of the portfolios, the vast majority of the loans in our portfolio were seen as either strong or performing sufficiently. However, given the ramifications of COVID-19 are likely to weigh on performance, as well as the value of shares, for a significant time to come, shareholders – including Nedbank Private Wealth – voted for an orderly wind-up of the fund. We believe that as the portfolio is run off and capital is returned to us, we will be able to seek out better opportunities for clients. The holding varies between 0.4% and 2.4% of portfolios, depending on the level of risk. More details will be published as they are made available.
Meanwhile, the Hipgnosis Songs Fund continues to perform as per our expectations given its focus on acquiring assets that benefit in the short and long term from the increasing appetite for streaming music services. This future is supported by last week’s announcement of the acquisition of the RedOne catalogue of 337 songs, which includes hits from Lady Gaga, Alexandra Burke, Enrique Iglesias and Jennifer Lopez among others.
As has become the norm since the start of the pandemic, the US weekly jobless claims publication on Thursday 23 July will again be of importance. On Friday 24 July, July’s flash purchasing managers’ indexes (PMI) will also be in focus, with the attention in the US on whether the resurgence in virus cases has affected its PMI readings.
This week sees S&P 500 quarterly earnings season begin in earnest. Headline numbers are expected to decline by around 45% versus 2019’s second quarter, marking the most significant drop since the 2008 global financial crisis2.
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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.
If you would like to find out more about how we manage clients’ investments, please contact us on the same number as above. Or you can get in touch using the links to the forms towards the end of this page.
Sources: Nedbank Private Wealth and (1) Covid Tracking Project; (2) Bloomberg; (3) US Department of Labor; (4) US Census Bureau; (5) Office for National Statistics; (6) UK Government; and (7) US Trade Representative.
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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