Global Equities Gain As The Outlook Brightens
Global equity markets posted significant gains this week amid a continued easing of lockdown restrictions across the globe, while a shock increase in US employment defied expectations and boosted optimism that the economy is bouncing back from virus-induced recession. After a strong start, the rally has cooled somewhat over the week on warnings that markets could be underestimating economic weakness, and ahead of the June FOMC announcement expected later today. Still, with continued support from governments and central banks while data suggests a healthy pickup in activity is now underway, optimism on the medium term outlook continues to dominate sentiment, with even the “smart-money” now returning to equities as the risks of missing out are becoming greater.
For more information on expectations for the Fed’s announcement today and how this impacts our outlook, please see the attached Market Update document.
Divided Europe
- Brexit
Negotiations with the EU for a comprehensive economic agreement to replace the UK’s decades-long membership have restarted, however little progress has been made. Tensions ran high during talks last week and ended again with the two sides still far apart on key issues ahead of a key deadline at the end of the month.
On the 1st July, the current transition period that the UK is in can be extended from 31st December 2020, by up to one or two years. Such a decision must be taken jointly by the EU and United Kingdom before 1st July 2020. A succession of opposition lawmakers have argued that the government should extend the Brexit transition to allow companies to recover from the coronavirus pandemic before facing a costly change in relations with EU. However, Paymaster General, Penny Mordaunt, has told the House of Commons that she and Michael Gove will not be extending the transition period when they meet EU counterparts at a Brexit joint committee meeting on Friday, noting that such a move would be “crazy.”
- Europe’s Coronavirus Package
While EU leaders agree upon the need for a fund to assist with the recovery of a struggling European economy, they can’t seem to find common ground on the finer details. The plan would make as much as €500 billion in grants and €250 billion in loans available to the region’s nations tackling the virus-induced recession and would be funded by joint debt issuance in a significant step toward closer financial integration.
Several countries have already raised issues with the proposed blueprint. Among the key points of contention are the size of the fund as well as the mix between grants and loans. Another issue has to do with the criteria based on which aid will be allocated to different countries, something governments are expected to fight over in coming weeks.
Even though the European Union’s €750 billion coronavirus recovery package is facing stiff opposition from budget hardliners, Germany believes an agreement can be reached quickly, with German Finance Minister Olaf Scholz noting a constructive spirit evident on all sides. The program needs backing from all sides before going ahead and heated negotiations are expected in the weeks to come. The agreement of a package would likely be received very positively in markets, with the European Stoxx 600 index still down 11% since the start of the year as governments struggle to agree on joint stimulus.
The UK Emerges from Lockdown
As the UK continues on its path out of lockdown, zoos, safari parks, and drive-in cinemas are joining most English shops in being allowed to reopen from 15th June (so long as they can apply social distancing rules) as Boris Johnson tries to restart the economy ahead of the summer. Meanwhile, plans to allow all primary schools to reopen before the summer holidays have been abandoned. Johnson will lead tonight’s daily coronavirus briefing announcing the easing of these restrictions as he tries to balance the need to allow businesses to reopen with the need to control the spread of coronavirus. Looking ahead, one of the Prime Minister’s challenges remains how to reopen pubs, restaurants, and cafes. The target date for the reopening of these businesses is set at the 4th July, but many are questioning how practical this will be while social distancing measures remain in place.
Key Events We Are Watching This Week:
- Wednesday: Fed Interest Rate Decision and FOMC Economic Projections
- Thursday: US Jobless Claims
- Tuesday: UK Unemployment Rate
For anyone who wants further data to substantiate the position please review the attached Global Economic Update document and the Economic Dataset below.
Model Portfolios & Indices
Global stock markets remained volatile over the week as the global economy eases lockdown restrictions following the Covid-19 pandemic. Over the week, all major indices gained as optimism over a recovery in economic activity and further stimulus offset concerns over near term weakness. The portfolios gained over the week, benefiting from a high level of diversification as equity and bond assets gained over the week.
Over the coming weeks, as we are now normally invested, we expect intraweek performance to be more in line with the benchmark once again, and we are optimistic on the medium-term outlook from here. Year to date, we have now recovered the bulk of the March coronavirus decline, and we are in a strong position moving forward looking ahead to the second half recovery and strong growth in 2021.
Important Information
Past performance cannot be used as a guide to future performance and the value of your investment will fall as well as rise in value. You may not get back all of your investment and the final value of your investment will depend on the performance of your portfolio. The actual performance of an individual client’s portfolio may differ due to different funds being used and being restricted in relation to certain asset allocations. Performance figures quoted include fund manager charges but exclude adviser, discretionary, custodian and switch charges. Unless stated, income is reinvested into the portfolio. The information contained in in this document is for information purposes only. It does not constitute advice or a recommendation or an offer or solicitation for investment.
This Day in History
On this day in 1692, the first colonist was tried in the Salem witch trials and was found guilty of the practice of witchcraft.
Have a great week,
Jason & Gina
