The Lowdown │ Global Markets to 27 October 2020

The Lowdown Global Markets to 27 October 2020

Published September 28, 2020


  • Increasing Covid numbers, lingering uncertainties regarding a new fiscal stimulus bill and ongoing Brexit negotiations affect market sentiment
  • The Chancellor announces a new wage subsidy as the current furlough scheme ends
  • Governments and central banks remain accommodative
  • Higher fiscal spending should provide investors with attractive investment opportunities
  • Global equities will continue to deliver the best investment returns

Global Market Summary

As September and the end of the third quarter approach, we are starting to realise that the global equity markets lost some of their momentum over the summer: Wall Street recorded its first four-week decline since August 2019.
This month’s declines have been exacerbated by concerns over a second potential coronavirus wave, lingering uncertainties regarding a new US fiscal stimulus bill and ongoing fears over Brexit.
Unfortunately, there is no sign of the pandemic ending any time soon, meaning grave implications for both people’s lives and the global economy. According to the Office of National Statistics, Covid case numbers in the UK jumped 73% in the week ending 19 September. And globally, the US now accounts for one fifth of all virus infections recorded.
On Capitol Hill, the House Democrats are preparing a further US$2.4 trillion relief package, which may be voted on as early as next week. But whether the Republicans will support a package of this size so close to the November elections remains to be seen. In the UK meanwhile, the government borrowed a further £35.9 billion in August in a further attempt to stem the economic fallout from the pandemic.
Still in the UK, Chancellor Rishi Sunak announced a new wage subsidy scheme designed to support “viable jobs”. This will involve the government topping up the wages of employees who can work at least one third of their normal hours. The scheme will begin in November and will last for six months. However, it seems less generous than the recently-ended furlough scheme.
Ongoing Brexit negotiations between the UK and the EU continue to prove challenging, with dialogue between the two entities increasingly tense. There is little doubt that both sides want to reach an amicable agreement and acceptable terms. But the prospect of this happening still seems a long way off… and time is running out.
Despite the unprecedented events and circumstances of the last six months, investment returns have still been extraordinary. But now we really need to see genuine progress over the next few months as far as a vaccine is concerned: winter is just around the corner and the likelihood is that further regional lockdowns are unavoidable.
A number of major world events will reach a conclusion over the next six months. The US presidential elections are now just over a month away and will either see Donald Trump returned to the White House for a second term… or will spell a first one for Joe Biden. The resulting political and economic backdrop will be extremely different, depending on who is elected.
In the UK, the post-Brexit transition period will finally end, and we will get on with negotiating new trade deals with our major global partners. Meanwhile, our daily routines will continue to be shaped by Covid-19: our jobs will still involve a combination of office-based working and working from home.
Government officials and central bankers will remain accommodative in relation to their economic, monetary and fiscal policies. This will mean that lower-for-longer borrowing costs will help finance recovery programmes, while continuing fears in relation to Covid will bolster people’s desire to build a world that is healthier, safer and more sustainable.
The investment returns that the financial markets have yielded since March – particularly in the technology sector – are clearly not sustainable (given high bond prices and some lofty valuations). But while Covid-19 continues to wreak havoc on the global economy, certain pockets of the market will continue to benefit considerably from the current investment backdrop.
That said, the more traditional asset classes are likely to perform less well than in recent times over the coming months – particularly if inflation starts to pick up. But we still expect the markets to offer a range of excellent investment opportunities as further disruptive forces and an increase in sustainable investing start to figure more prominently in portfolios.
Similarly, many leading governments’ policy of increasing fiscal spending in the future should generate attractive investment opportunities in infrastructure and natural resources.
So as we enter the final quarter of 2020, we shall be devoting more of our time to the topics and outcomes referenced in this week’s report, together with the forthcoming third-quarter corporate earnings season figures. The aim is to see how businesses are adapting to this fast-changing world.
With central banks having confirmed that interest rates will remain low for many years to come and higher government fiscal spending imminent, we believe that equities will continue to deliver the best returns – particularly if growth and trade continue to recover into 2021.