Market Update – 16th September 2020.

Global equity markets have got off to a reasonable start this week, helped by news that AstraZeneca had resumed UK clinical trials of its coronavirus vaccine, while the US pharmaceutical company, Pfizer, said that their coronavirus vaccine could be viable by the end of October and distributed within the US by the year-end.

Also helping equity market confidence has been economic data releases from China, which have come in stronger than economist expected.  The highlights to us include industrial production (which grew by 5.6% in August – up from 4.8% in July and estimates of 5.1%) and retail sales (which grew by 0.5% in August – its first positive reading since the coronavirus outbreak).  UK employment data (which showed unemployment increased from 3.9% to 4.1%), unfortunately continues to be fairly meaningless, given it is being distorted by the government’s Job Retention (furlough) scheme.

US equities have had a particularly strong few days following a brutal two weeks of falls –which supports our previous statement that this was simply profit-taking in a handful of heavy-weighted technology stocks that has now, by and large, run its course, rather than a more sinister erosion of confidence.  For example, Tesla, which was at the epicentre of last week’s sell-off, closed over 12.5% higher on Monday.

Japanese equities have also been helped by confirmation that Yoshihide Suga, will become Japan’s next Prime Minster, after Shinzo Abe stepped down due to poor health.  Consequently, we expect a relatively seamless transition as he has already pledged to continue the current ultra-loose monetary policy.

Although we have had a relatively quiet economic calendar so far this week, this is a big week for the key central banks, as we have policy meetings in the US, UK and Japan.  The Fed’s monetary policy announcement is first up (Wednesday 16 September 2020 at 7pm UK time).  This is then followed by the BoJ and BoE on Thursday (17 September 2020).

Despite the fact we aren’t expecting any of the central banks to do anything to risk the current positive market sentiment, our ears will be pricked up ready to listen to their comments.

For example, while we don’t believe the Fed is likely to want to alter monetary policy ahead of the US Presidential election (which is now less than 7 weeks away), we wouldn’t be surprised if Jay Powell, the Fed Chair, warns us that the US economic recovery is likely to slow down if Congress don’t get on and agree a new US fiscal stimulus package to help those American workers that have been hard-hit by the coronavirus outbreak and associated lockdowns.

Likewise, the BoJ may simply want to talk a good story to help support Yoshihide Suga.

The BoE’s decision is slightly more complicated given the increasingly uncertain backdrop, as a result of renewed coronavirus restrictions, the ending of the government’s Job Retention (furlough) scheme and of course the souring Brexit negotiations.  Although the BoE has so far resisted the temptation of taking interest rates below zero, a complete breakdown in Brexit negotiations will almost certainly result in negative interest rates – however, at this stage, we expect the BoE to simply signal that more QE could be on its way.

We will update you about these central bank policy meetings in our weekly market summary.

Investment Management