In Europe, the rise in infections has already prompted France and the UK to announce new restrictions1. In the US, the rate of weekly cases being reported also increased, moving above 300,000 again, having only fallen below that level at the end of August. Meanwhile, on the vaccine front, reports2 have been published that pave the way for the US’s Food and Drug Administration to set out new, tough standards for the emergency authorisation of a coronavirus vaccine. This came as Johnson & Johnson announced that it was launching phase three of its trials, which involves a single vaccine dose being given to up to 60,000 participants. In the UK, meanwhile, there were reports2 that the government is considering allowing the exposure of healthy individuals to the coronavirus in a bid to accelerate the development of the AstraZeneca/Oxford University vaccine, which is also entering phase three trials.
On the economic front, the US composite purchasing managers’ index (PMI) reading3 held strong at 54.4, well ahead of a score of 50 separating expansion from contraction. However, the US initial jobless claims number again disappointed, coming in at 870,0004. By way of context, this latest reading is and has remained higher than the pre-pandemic record of 695,000, set in 1982, and continually exceeds the worst week of the financial crisis, raising concerns that progress in the labour market is stalling in the US.
Hopes remain focused on more economic support being agreed following the push by the Federal Reserve chair, Jay Powell, when he reiterated the need for fresh fiscal stimulus5 before congress on Tuesday 22 September. Reports followed that indicated both the Democrats and Republicans are open to negotiations, with the Democrats in the process of preparing a US$2.4 trillion stimulus proposal. However, the infighting over the generosity of the package could intensify as Trump announced over the weekend that he had chosen Amy Coney Barrett to replace US Supreme Court Justice Ruth Bader Ginsburg after she died on 18 September2. This is due to the potential scenario in which the Supreme Court could preside over the outcome of November’s US elections, and will judge a case against the Affordable Care Act (aka Obamacare), set for 10 November.
In Europe, the latest economic data release provided clear signs that the Euro area’s services sector has already been impacted by the second wave of COVID-19, as services PMIs came in at 47.6, i.e. in contraction territory.
Meanwhile, the UK chancellor, Rishi Sunak, prolonged support for businesses, swapping the furlough scheme for wage subsidies that are only aimed at those still in work, as part of his Winter Economy Plan, and which aimed to replace previous measures to support the economy following the cancellation of the Autumn Budget. The Bank of England governor, Andrew Bailey, downplayed the prospect of a move to negative interest rates after the latest meeting minutes showed that the central bank’s decision makers were exploring how such a move could be implemented.
In markets, world equities in the four days to Thursday 24 September were down around -3.0% in US Dollar terms and -1.6% in Sterling terms. The difference was due to Sterling, which was lower on the back of tougher COVID-19-related restrictions and hard Brexit concerns.
Cyclical sectors declined the most, with energy (-5.54%), materials (-4.43%), and financial services (-3.97%) stocks the hardest hit. Financial stocks also came under pressure due to another money laundering scandal hitting the headlines, alleging that many of the largest global banks have processed trillions of US Dollars of suspicious transactions over two decades.
Cyclical sectors declined the most, with energy (-5.54%), materials (-4.43%), and financial services (-3.97%) stocks the hardest hit. Financial stocks also came under pressure due to another money laundering scandal hitting the headlines, alleging that many of the largest global banks have processed trillions of US Dollars of suspicious transactions over two decades.
The IT sector (+0.64%) and the more defensive sectors, such as utilities (-0.07%) and consumer staples (-0.24%), outperformed the broader market.
In terms of regional performance, the general risk-off environment meant Emerging Market stocks (-3.06%) underperformed. UK (-3.40%) and European (-3.81%) stocks were also weak reflecting their higher exposure to more cyclical sectors, such as financials.
Within bonds, the general risk-off environment meant government bonds (+0.19%) outperformed corporate bonds (-0.29%) and high yield (-1.51%). US government bonds generated the highest return (+0.30%), as yields moved lower.
However, given government bonds did not generate much in the way of a positive return, despite the sharp fall in equity markets, it highlights how little downside protection government bonds are currently providing.
Our fixed income investments and investment trusts, which were not spared in the sell-off, held performance back during the week of 21 September.
Although our exposure to US government bonds supported returns, our overall lack of duration and exposure to corporate credit detracted.
Meanwhile, the announcement of two large capital raises by Greencoat UK Wind and Hipgnosis weighed on most of our alternative exposures.
Hipgnosis announced a four-day capital raising on Monday 21 September as it sought to raise up to £250 million through an issuance at 116p per share, representing an 8% discount to the previous closing price. While the team managed to raise £190 million in the short time frame – an impressive feat given the market environment – the discount hit performance.
We hope that the Greencoat UK share price can now recover following the capital raise closing on 28 September.
In terms of economic data, US authorities will publish the September jobs report, and attention will intensify on the upcoming US election, as Trump and Biden face their first of three debates on Tuesday 29 September.
The coronavirus will remain in focus, with case numbers continuing to rise in Europe and, with it, an increased probability of fresh restrictions being put in place.
Meanwhile, another round of Brexit negotiations is taking place and several PMI readings will be released from a number of countries.
There is also a special European Council meeting that was rescheduled from 24 and 25 September after the council’s president came into contact with someone with COVID-19.
And although there are no major central bank meetings, we will hear from the European Central Bank President, Christine Lagarde, as she speaks before the European Parliament’s Economic and Monetary Affairs Committee.
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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) John Hopkins University; (2) Reuters; (3) Markit Research; (4) US Department of Labor; and (5) Bloomberg.
The value of investments can fall, as well as rise, and you might not get back the original amount invested. Exchange rate changes affect the value of investments. Past performance is not necessarily a guide to future returns. Any individual investment or security mentioned may be included in clients’ portfolios and is referenced for illustrative purposes only, not as a recommendation, not least as it may not be suitable. You should always seek professional advice before making any investment decisions.
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