COVID-19 case numbers remained elevated across Europe1, although comparisons with the initial wave may be misleading given the increased capacity in testing. However, as the US looks set to register 200,000 deaths, there are no signs that the disease is under complete control in any territory. On the vaccine front, the positive news flow from the restart of the AstraZeneca/Oxford University trials was supported by reports that Pfizer’s vaccine trials did not raise any safety issues after 12,000 patients received their second of two doses2.
In other news, the US initial jobless claims came in at 860,0003, relatively unchanged from the week before. However, US retail sales disappointed as growth in the rate of its incline versus other months slowed unexpectedly4. Meanwhile, stimulus discussions remain stymied as, although the Trump administration has indicated it is open to discussing the US$1.5 trillion package from Congress, there was push back from leading Senate Republicans who see the package as too large2.
Also in the US, the Federal Reserve (Fed) signalled on Wednesday 16 September that it would keep the funds rate and quantitative easing at current levels until the end of 2023 at the least. The committee also indicated5 it would not tighten policy until inflation had been higher than 2% “for some time” and that “the path ahead remains highly uncertain”, despite the view that the US had recovered faster than expected.
The Bank of England also met and voted unanimously to keep policy rates unchanged6. However, the meeting prompted a fall in the value of Sterling as its minutes showed that the decision makers had been briefed on plans to “explore how a negative bank rate could be implemented effectively”.
Also in the UK, the controversial Internal Market Bill passed its second reading in the House of Commons last week by 340 votes to 2632. Given there are further rounds of voting to come, including a vote in the House of Lords, it is likely the bill will be amended to include the need for parliamentary approval if the government were to attempt to override the Northern Ireland protocol.
In the markets, in the four days to 17 September, the MSCI AC World was up +0.8% in US Dollar terms, but down -0.4% in Sterling terms. On Friday 18 September, the markets fell approximately 1% to leave risk assets in US Dollar terms largely in negative territory for the week as a whole.
It was a mixed picture for sectors and styles. Equity investments on the whole, and in the tech sector in particular, have been looking much less secure over recent weeks than they did through much of the summer. There is a clear case to flag our concerns over valuations after such a strong run over recent months.
At a regional level, Emerging Markets have been doing marginally better (1.74% month-to-date), while the US has lagged (-1.35% month-to-date), although this is partly due to its sector concentrations and the weak US Dollar.
The trend in Emerging Markets’ outperformance has been supportive of our allocation to these markets, while our other equity funds have generally performed in line with their indexes, both last week and over the month.
The week of 14 September was also a relatively quiet week for bonds, with some small gains coming through on the back of a slight reduction in yields.
Property and our alternative investments presented a mixed bag of results.
Global real estate investment trusts (REITs) were positive, as were our healthcare strategies. Having recently met with the management teams of both the Impact Healthcare REIT and Target Healthcare REIT, we hope that the confident statements about the reliability of their rents and tenants etc. can continue. On the UK commercial property trust front, the outlook remains less certain as investors continue to face hurdles from both Brexit and more lockdowns.
Our investment in the songs’ catalogues of Hipgnosis continues to attract positive news, offsetting the weakness in our renewable investments. We believe the headwinds in this sector are due to Greencoat UK’s capital raising, which is being offered at a discount to its trading price. This is likely to hoover up any capital looking for a home in the renewables space until the issue closes at the end of the month. After then, we hope that the share price of all the renewable investments will firm up.
Last, but not least, the management team at the KKV Secured Loan Fund has appointed a new non-executive director, Brett Miller. Miller, who was seen as instrumental in improving the fortunes of another troubled closed-ended debt fund called Hadrian’s Wall, should bring experience that will support the board as the fund heads towards an orderly wind up – a process we believe should result in good news for our clients.
The US initial jobless claims release remains a key indicator of the US economic uplift, and is published alongside the release of September’s preliminary or ‘flash’ purchasing managers’ indexes. The Fed chair, Jay Powell, is set to give a speech on 22 September.
Attention will also remain fixed on Brexit negotiations and the UK government’s Internal Market Bill, while Andrew Bailey, governor of the Bank of England, is set to speak on 24 September.
Finally, EU leaders will gather at the end of the week for a special European Council summit.
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Sources Nedbank Private Wealth and (1) John Hopkins University; (2) Bloomberg; (3) US Bureau of Labor; (4) US Commerce Department; (5) Federal Reserve; and (6) Bank of England.
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