OCM Commentaries

Market Commentary 12th August 2020

By August 12, 2020 August 13th, 2020 No Comments

Economic Stimulus Props Up The Global Market Re-bound

As the global economy recovers from the Coronavirus-induced lockdowns imposed earlier this year, economic data suggests that the reactive policy and stimulus packages implemented by policy makers around the world in response to the pandemic fulfilled their aim of avoiding the worst-case scenario. Policies such as the US HEROES Act and the UK’s furlough scheme have helped support jobs and household income throughout lockdown, which in turn has helped to reduce the number of COVID-19 cases from April’s peak. As cases fell, nations began exiting lockdowns and opening sections of the economy, allowing employees to return to work, spend their disposable income, support other jobs and stimulate demand. As such, UK and European PMI, Chinese export and US Jobs data have all now started to pick up, providing an indication to investors that a global recovery is underway. As US stimulus packages near expiry, this week President Trump has extended the financial relief through  a series of executive orders, which led to increases in the US, UK and European markets based on economic recovery hope.

Trump’s Executive Orders, Presidential Opinion Polls

Discussions between the Trump administration and Democrats broke down towards the end of last week, despite the looming Senate recess. The extended Senate break is now preventing a stimulus package similar to the HEROES Act being enacted in August, putting a stop to the much-needed financial relief for millions of Americans. Fuelled by a matter of urgency, the weekend saw President Trump issue several new executive orders aimed at extending the Covid-19 economic stimulus.  The executive orders consisted of:

  • An extension of the federal unemployment supplement at a reduced rate of $400 per week
  • A payroll tax holiday through the end of the year for those earning less than $100,000
  • Extended student loan relief through the end of the year
  • A call for federal agency leaders to try and find funds to help curb evictions

On Monday, markets initially climbed on the news as the orders provided investors with optimism that further stimulus checks will be passed in the US, as the S&P 500 neared an all-time high. Albeit, under the American constitution, only Congress can initiate new federal spending, which could make the $400 a week supplement extension unlikely. As a result, the economic benefit of the executive orders is likely to be less than anticipated, meaning this could be temporary fix until another stimulus package is agreed upon. The Democrats are holding out for at least $2 trillion in additional stimulus, whereas the white house is remaining firm on $1 trillion. President Trump’s Treasury Secretary Steven Mnuchin announced that the White House is keen to restart talks this week, hoping to reach a deal this week if the Democrats make a ‘fairer’ offer. If Congress can agree on a deal this week, individuals could receive the second round of stimulus checks by early September. In our view further US stimulus is inevitable, however as uncertainty continues, this could be pushed back later which would put many Americans in a difficult position financially.

As the November presidential election fast approaches, investors may continue to see widely supported policies (such as further financial support for Americans) enacted through executive orders by Trump. His recent orders may be seen as a stunt to politically point score, in a bid to be re-elected in 2020. On inspection, the executive orders are unrealistic and are expected to only benefit the economy by $200 billion, a fraction of what many see as required. However, Trump’s political ploy could allow him to benefit from the headlines in the short term, whilst also allowing him to send the following fund-raising text to his supporters: “I signed 4 Exec Orders to help the American People. What did the Swamp do? NOTHING.”

President Trump currently trails Democrat Joe Biden in most 2020 election polls, which we expect to lean further into Biden’s favour as a result of his strong running mate pick, Kamala Harris. Californian senator Ms Harris has become the first African American woman on a main US party’s presidential ticket, which will strengthen the Democrat’s appeal to many amid the 2020 BLM movement. Another important point is her political stance – as a Democratic centralist, she is less progressive than the likes of Bernie Sanders, which could persuade previously republican voters to vote Democrat in the nations swing states.

UK Unemployment Increases, Some signs of a recovery

This week the ONS data release showed the level of UK employment fell by the largest amount in over a decade between April and June. Britain’s mounting labour market crisis was underscored by a 220,000 slump in employment at the height of the coronavirus lockdown, as the number of employees on payrolls is down around 730,000 compared with March. The unemployment rate has not surged as much as originally feared, largely because of the government-backed furlough scheme. Furthermore, despite the 3-month unemployment rate remaining at 3.9% up until June, the single-monthly Rate for June was 3.8%, better than economists’ expectations of 4.2%. This positive monthly figure is a sign of the re-bound in the economy as a result of pent-up demand, yet we will have to wait and see on additional data if this is a persistent trend.

While the data appeared more positive than expected, concerns are growing that these figures do not represent the full extent of UK unemployment. To qualify as unemployed, individuals must be actively looking for a new job. In the UK, it is expected many individuals have refrained from looking for jobs during the pandemic amid continued uncertainty, meaning they qualify as inactive rather than unemployed. As a result, the effect on the labour market could be slightly worse than is reported.

For more information on the UK economy and the recent jobs data, please see the attached Market Update document.

Investors were diligently observing the ONS second-quarter GDP estimate earlier today, which highlighted a 20.4% contraction in GDP. This result was in line with the Bank of England’s and others second quarter expectations. We expect investors and the government to maintain the 2020 GDP forecasts as a result, with investors in the FTSE 100 reacting positively to the in-line data.

Global Markets Rise

Global markets have risen over the past week as the latest economic data and fresh stimulus plans issue signs of an economic recovery. In June, the UK services PMI rose to 56.5 from 47.1 in May, and manufacturing PMI rose to 53.6 in July. Barclays, who process £1 in every £3 spent, announced that compared to the first full week that pubs and restaurants could reopen, spending was up 49.2% and 23.2% respectively. The European composite purchasing managers’ index rose to 54.9, the highest level in just over two years. The €750bn European recovery fund has also pushed markets higher, providing confidence in the eurozone.

News of a slowdown in Chinese factory deflation in July were driven by a rise in global energy prices and an increase in industrial activity, as a result of pent-up demand and resilient exports. Global investors are focused on the Chinese data since the nation is further ahead than others in lifting lockdown and returning to normal. International investors were also reactive to the stimulus measures enacted by President Trump over the weekend, as the combination of executive orders and a potential cut to capital gains tax helped support the global outlook.

Vaccine Update

A surprising news release over the week was the announcement from Russia that it has cleared the world’s first COVID-19 vaccine, despite clinical testing only just entering the 3rd phase. The Russian president has paved way for the widespread use of the vaccine among Russia’s population, even announcing that one of his daughters has already been administered the vaccine. We approach this announcement with a level of scepticism, as scientists globally fear the vaccine has not been properly trialled and tested. On the news, markets erased their daily gains as investors rotated out of big tech companies which make up a significant proportion of the market and invested in sectors which would benefit from the vaccine, such as airlines. We expect the UK, US, and China to continue the development of their own vaccines for the foreseeable future, waiting for accurate data to be made available from China and their own developments.

Our Positioning

This week has been broadly in line with both our and other analysts’ expectations. We expected volatility as key political decision making and economic data moved markets, and we maintain the view that the global economy is slowly recovering. Regions continue to successfully handle any increases in COVID-19 cases, which would provide the biggest threat to any global economy. We remain positive going forward with our portfolio positioning, however high volatility is expected as geo-political relations, US election information and economic data releases continue to dominate headlines.

Key Events We Are Watching This Week:

  • Earnings releases over the week
  • Thursday: US Jobless claims
  • Friday: Chinese Industrial production figures and retail sales for July, European GDP Q2, US retail sales for July

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 continued to show high levels of volatility over the week as countries across the world battle with increasing virus cases, mixed economic data, and fresh stimulus. Over the week, the major indices regained some lost ground in recent weeks on hopes of further economic stimulus. The portfolios remained relatively robust in the face of market volatility over the week, benefiting from a high level of diversification in asset classes and geographies. Looking ahead, we are optimistic on the medium-term outlook from here, accepting further volatility in the near term, but confident in our positioning, with well diversified portfolios which have been designed to weather these market conditions. Year to date, we have now recovered from the March coronavirus decline, and we are in a strong position moving forward.



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 1908, the Ford Motor Company built the first Model T car. Conceived by Ford himself as a practical, affordable transportation for the common man, the Model T quickly became prized for its low cost, durability, versatility and ease of maintenance. In an international poll, the Model T was named the world’s most influential car of the twentieth century.


Have a great week,


Jason & Gina