Weekly Market Update

28/07/2020

The UK economy is on a longer road to recovery than the US and Europe, on account of our slower lockdown imposition and also our slower rate of normalisation. A big chunk of the UK’s economic output is exposed to the negative implications of social distancing, with the hit to the hospitality and entertainment sectors highlighted in the first chart below:

It looks at visits to retail and recreation locations across various regions relative to January, and shows the UK lagging. This has impacted on the recovery in aggregate, as can be seen from the second chart which amalgamates various measures of activity to form a composite recovery tracker:

Last week the Chancellor announced that nearly 900,000 public sector workers, including doctors and teachers, are to get an above-inflation pay-rise. The Treasury said that the money for the pay increases of up to 3.1% would come from existing departmental budgets.

In markets the Pound moved higher against other major currencies during the week, rising by 1.78%, 0.55% and 0.07% against the US Dollar, Yen and Euro respectively.

Equities generally fell as investors remained concerned around the state of the US economic recovery in light of increased virus infections and fatalities. Billions of dollars of federal aid is set to expire at the end of July, with an updated proposal still being finalised.

The FTSE 100 index fell by 2.6%, being negatively impacted by the stronger Pound, with the S&P 500 also lagging with a 2.2% loss due to the above, as well as increased tensions with China. Emerging Market equities led by Eastern Europe and Latin America performed relatively well, with the UK’s FTSE 250 also outperforming, though still registering a negative 0.5% return.

Safe havens were sought after this week, with UK government bonds generally rising in value, but the standout performer at the asset class level yet again was precious metals. The price of silver rose by 13.3% in Pound terms, and that of gold by nearly 3%, with associated mining equities also rising strongly.

Gold is now approaching all-time highs when priced in US Dollars – a level reached in August 2011. As before, we feel that a near-term correction or ‘pause’ would offer some respite for investors given how sharp the upward moves have been.

Market views by Ollie Stone – Head of Portfolio Management and Fairstone Private Wealth Ltd (27th July 2020)

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