The UK Treasury Announces Fresh Stimulus Package
Since lockdowns designed to contain the coronavirus became widespread in March, governments around the world have committed trillions of dollars to ensuring the survival of businesses that saw their revenues tumble and to supporting household incomes as the number of hours worked plummeted. An analysis by the IMF ranked the UK as the third biggest spender in its response measures to Covid-19, with the measures announced by Germany and Japan coming in first and second in the study as policymakers look to boost sentiment post-lockdown.
In addition to the initial £160billion support package announced by the government in the early stages of the pandemic, the UK’s new package announced earlier today marks the start of a second phase of government spending and tax cuts designed to boost demand and give businesses the confidence to put their employees back to work as the lockdown is lifted. In his Summer Economic Update in Parliament, Chancellor of the Exchequer Rishi Sunak announced the second part of a three-phase plan to secure the UK’s economic recovery from coronavirus, with a third phase expected later in the year. The stimulus announced today addresses concerns over sharp increases in unemployment as the end of the furlough scheme approaches, with businesses being incentivised to retain previously furloughed staff until January.
For more information on what was announced in today’s statement, please see the attached Market Update Document.
The number of coronavirus cases across the US continued to rise over the week as officials struggle to gain control over the virus in some states. This comes as the Trump administration began the process of leaving the World Health Organisation as the President accused the organisation of undue deference to China and failure to provide accurate information about the coronavirus. Critics have said that the move is aimed at distracting from the US administration’s failure to control the virus, with it almost certain that Democratic rival Joe Biden would reverse the decision if he’s elected in November. Elsewhere, the infection rate has been dropping in Germany, Beijing reported no new cases for a second day and Tokyo saw new infections slow, suggesting that new clusters of the virus in other countries identified in recent weeks are being effectively controlled at this stage.
Hopes for a V-shaped Recovery Fade
Heading into the second half of the year, hopes for a V-shaped global economic rebound are fading as the world remains weighed down by the coronavirus pandemic. Central banks and governments have injected trillions of dollars of unprecedented support into the world economy, and most gauges of manufacturing and retail sales in major economies are showing improvement. But the reopening of businesses has been gradual and labour markets remain unsteady, with much depending on the ability of governments to retain control over the virus as a vaccine remains out of grasp.
That being said, the global economy is starting to recover as activity picks up, however at a more gradual rate than some economists expected. At OCM, we anticipated a gradual U-shaped recovery, with further volatility expected in the near term as key economies reopen and confidence returns. Our portfolios have been designed with this in mind, with a high degree of diversification to mitigate excess risks as the global economy recovers, while markets are now pricing in more realistic recovery expectations than we saw at the start of last quarter.
Key Events We Are Watching This Week:
• Thursday: German trade data, US jobless data
• Tuesday UK and Eurozone GDP, Industrial Production
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 the US battles with increasing virus cases. Over the week, major indices advanced on optimism over increasing economic activity as economies re-open from their coronavirus induced lockdowns alongside continued government and central bank stimulus, offsetting virus fears over the week. The portfolios remained robust in the face of risk off sentiment in markets, benefitting from a high level of diversification in asset classes and geographies.
Over the next week, we will be making changes to the portfolios to add more exposure to areas such as China and global value stocks, where we see opportunity for outperformance in the medium term. This is part of our continued analysis of markets and potential opportunities as the global economy recovers. We are optimistic on the medium-term outlook from here, accepting further volatility 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 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.
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 1889, journalist Charles Henry Dow published the first issue of the Wall Street Journal. His original contributions include the compilation in 1884 of the first average of selected US stock prices that, with some modification, developed into what are known as the Dow Jones averages.
Have a great week,
Jason & Gina