OCM Commentaries

Market Commentary 17th September 2020

By September 17, 2020 No Comments

The Bank of England Hints at Further Stimulus

The Bank of England (BoE) outlined its strategy for further monetary policy earlier today on the back of waning optimism over the UK’s economic rebound. In August’s monetary policy meeting, the BoE vote to leave policy unchanged was in line with investor expectations as evidence of an improving manufacturing and labour market sector provided greater optimism. This time around, the BoE voted unanimously to maintain the interest rate at 0.1% whilst maintaining its asset purchase target, as officials highlight the unusually uncertain time ahead of the UK economy. A change to the central bank’s monetary policy was not expected this time around, however financial markets have begun factoring in potential easing as soon as November.

There are three key factors weighing on the bank’s outlook – job losses, social restrictions, and Brexit trade talks. Firstly, significant job losses at the end of the UK’s furlough scheme in October have been a cause for concern over the last month, as businesses are expected to make the employees it can’t keep redundant, which in turn will disrupt the economic recovery. At its peak, 30% of the UK workforce was furloughed, as the government attempted to mitigate the impact of the impeding recession from the pandemic. However, as labour support programmes wind down, the BoE anticipates the unemployment rate to almost double to 7.5% by the end of the year, supporting calls for further monetary policy to stimulate demand within the economy.

New social restrictions which prevent groups from meeting in sizes greater than 6 in response to rising UK daily virus cases are also expected to drag on the recovery. As restrictions are put in place, demand from groups greater than 6, may be withdrawn and hence reduce money circulation within the UK economy. This will impact some sectors greater than others, however, will still be a cause for concern for policy makers who want to avoid longer lasting effects from the pandemic induced recession.

Lastly, the outlook is being negatively impacted by concerns over a potential no deal Brexit, which will have a number of implications for the UK, most importantly being the lower growth prospects over the long run. In preparation for potential barriers to trade by the year end, and a lingering virus, the BoE has been evaluating how best to support the economy as it provided guidance around its monetary policy strategy.

For More information on this week’s Central Bank developments, please see the attached Market Update document.

Vaccine Progression

Last week, AstraZeneca’s Covid-19 vaccine study was put on hold over the week due to a suspected adverse reaction of a participant within the UK. During its phase 3 study, an unexplained illness arose in one of the trials which was reported to be an inflammatory syndrome that affects the spinal cord. The pharmaceutical’s vaccine, in collaboration with the University of Oxford, has been a front runner since the race for a vaccine began, and the reported side effect discovered could have been viewed as a blow to the vaccine’s reputation amongst the general public. AstraZeneca acted quickly to allay concerns, highlighting this is just a routine action which happens whenever something unanswered arises. Investors will be pleased to know that the majority of the firm’s trials have restarted, with the US trials the only ones yet to be resumed.

Elsewhere, no government has been as vocal on vaccines than President Trump’s administration. This week, Trump announced that the first Covid-19 vaccine shot could be ready within four weeks, as he attempts to politicise the speed of vaccine approvals against his rivals. The scientific community has been raising their concerns about Trump’s attempts to rush the FDA into approving a vaccine before the election on November 3rd on safety and efficacy concerns. As such, there’s uncertainty on how markets will react to President Trump’s claims, since the awareness of political point scoring remains firmly on investors’ minds as the election season gains momentum.

US Politicians Issue Warnings to the UK

Earlier today, Democratic presidential nominee Joe Biden announced his warning to Boris Johnson’s government over its potential breaking of international law. Biden has highlighted his concern over the recent behaviour of Boris Johnson in attempting to re-write the Brexit withdrawal agreement in relation to Ireland, which we analysed in last week’s market update. Joe Biden, (who is five-eighths Irish) exclaimed “We can’t allow the Good Friday Agreement that brought peace to Northern Ireland to become a casualty of Brexit”, following this up with a threat that under his potential presidency, any trade deal between the US and UK must respect the current agreement in order to avoid a hard border. Biden shared a strongly worded letter signed by four senior members of Congress, with Boris Johnson yet to officially respond.

It’s not just those with Irish heritage that are concerned, either. Nancy Pelosi, the speaker of the US House of Representatives, also added pressure on the UK Prime Minister, who said any undermining of the Good Friday accord will mean there’s “absolutely no chance of a US-UK trade agreement passing through Congress”.

With no resolution to the Brexit impasse as of yet, the pound has continued to weaken. That being said, some investors are beginning to look through the short-term volatility and are taking some long positions on the pound as they see the odds of a “no deal” lower than what the market is implying. If it does turn out that both the UK and EU are bluffing in current trade talks, confidence in the UK’s economic recovery will grow, which should support UK equity markets.


Following the recent positioning changes, the portfolios are well positioned to navigate current market conditions as we move into the final quarter of the year. Our rotation away from mega cap tech stocks and large cap US exposure was well timed to avoid the decline in large tech share prices which happened last week, with a further correction in the sector expected in the short term. From this, we increased our exposure into small cap stock within the US and globally to benefit from more attractive growth prospects. Our new positions in clean energy and high yield bond funds are expected to benefit from the improving economic conditions in the short and medium term, as the shift towards renewable energy gains prominence in the major central banks’ recovery plans. As we see more evidence that economic conditions are improving over the coming months, we may use some remaining cash within our more cautious portfolios to top up existing positions – giving us more flexibility to adapt to changing market conditions moving forward.

Key Events We Are Watching This Week:

  • Friday: UK Retail Sales
  • Wednesday: Eurozone Consumer Confidence, Flash PMIs for September


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 display high levels of volatility over the week as countries across the world battle with virus challenges, mixed economic data, and stimulus expectations. Over the week, the major indices experienced mixed performance on rising virus cases and policy expectations. The portfolios gained strongly over the week, benefitting 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, in comparison to the benchmarks, we have 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


In this day in 1978, the Camp David Accords, negotiated by US President Jimmy Carter, were completed, leading to a peace treaty between Egypt and Israel and a broader framework for pursuing peace in the Middle East.



Have a great week,


Jason & Gina