Market Update – 27th August 2020.

Yesterday (Wednesday 26 August) was quiet in terms of meaningful data releases, seeing broader European and US markets close higher. US durable goods orders (a measure of manufacturing activity) for July did however report, smashing expectations, reporting at 11.2%, 6.5% ahead of expectation. This was largely driven by a continuing surge in automobile demand, whilst also suggesting that factories could be the proverbial flag bearer for the US recovery, seeing them potentially aid unemployment, wage and inflation data sets amongst others.

Hand in hand with this, today saw Chinese industrial profits post growth of 19.6%, its fastest pace of growth since the middle of 2018, suggesting the worlds manufacturing hub is getting back on track. This data runs alongside China being set to boost its pledge to the US that would see it increase its purchases committed to under the phase 1 trade deal, primarily driven by cheaper US Soybeans. Whilst there is some way to go to heal the economic relationship between the two economic superpowers, this pickup in agriculture purchases suggests there is at least some willingness. This comes amidst a weeklong trip for the Chinese Foreign Minister, Wang Yi to Europe to build key relationships in light of global trade tensions and indeed the pandemic.

The UK government has provided £1.9 million to scientists from the University of Cambridge in order for them to begin trials for a DNA based vaccine that could potentially protect against multiple coronaviruses. The University of Cambridge announced yesterday that it plans to begin trials in the autumn months. This can be seen as a progressive move given that, approximately, only 30 of over 170 vaccines have reached clinical trials, according to the World Health Organisation, with only a handful being DNA based.

Elsewhere we saw the French government hint about the contents of the €100 billion plan to boost their economy. Whilst the full details are not due to be announced until the beginning of September, they suggested it would be funded partly based on mutualised debt, with them receiving approximately €40 billion from the EU. This plan will be key in boosting the economy as we have seen an increase in the coronavirus infection rates in France and across Europe.

So, whilst the market is inevitably bracing itself for an element of volatility ahead of some coronavirus driven ‘fiscal cliffs’ as we close the year out, due to the transitory nature of the current backdrop, the volatility will likely be short term. This is something we have seen already this year, with broader equity markets performing well since their lows back in March. As always, there will likely be other ‘left field’ hurdles for markets to look through (as I write this, Hurricane Laura is hitting the Louisiana coast of the US, the most powerful storm to ever hit the state), but it is important to remember that short term noise is rarely a long term dictator for markets.

Jonathan Wiseman, Fund Manager

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