July 2020 Markets in a Minute

Posted by siteadmin on Tuesday 15th of September 2020.

Watch the introduction from our MD Piers to hear about how markets have grappled with the risks of a resurgence of COVID-19 cases, the optimism of a potential vaccine or cure and the continued support from governments and central banks. This balancing act has resulted in one of the quietest months for markets since the outbreak of the pandemic. In this month's post, we look at those virus related events impacting investment markets. 

 Global COVID-19 cases continue to increase

Markets continue to pay close attention to infection rates across the world for some sign as to when any form of ‘normality’ both socially and economically, may return.  

  • Worrying signs that cases were heading higher was confirmed by numbers coming out of many regions including Beijing and Tokyo and in particular, the United States during the first half of the month. Investment specialists are also monitoring the worrying ‘R’ rate in Germany.
  • Towards the end of the month, case numbers in the US showed signs of slowing in 36 States, bringing hope that the infection rate may be beginning to roll-over.
  • The World Health Organisation and Fed Chair Powell issued a further warning for the outlook ahead and several local governments in the US have slowed plans for easing lockdown measures, with some even going back into lockdown.
  • Sadly, we have now seen the total number of cases surpass 17 million and deaths exceed 650,000 since the virus first took hold.

Historic medical advances 

News on medical advances in the development of both a treatment and a vaccine for COVID-19 brought some cheer to markets during the course of the month.

  • Further studies suggest that Remdesivir, developed by Gilead Sciences, can reduce the fatality rate of COVID-19 patients by 62%. The firm agrees to sell nearly its entire supply until September to the US.
  • UK based small-cap drug developer Synairgen has potentially discovered a life-saving treatment for acute cases of COVID-19. Results from a recent trial ‘could signal a major breakthrough in the treatment of hospitalised patients’.
  • Pfizer and BioNTech showed positive results in the early stage trials of their vaccine. The firms are currently developing four potential vaccines, with the most advanced showing signs of both safety and efficacy. If successful it is expected that 100mln doses could be made available by the end of the year, with a further 1.2bn doses produced in 2021.
  • Moderna Therapeutics confirms positive results on its vaccine. The first phase of clinical trials, with 45 participants, suggests that the vaccine built an immune response in all cases. However, a fifth of participants noted one or more severe adverse side-effects. Enrolment for a second phase, including 600 participants, is now complete.
  • Positive news also comes from The University of Oxford, where their vaccine candidate, in development with Astrazeneca, is reportedly delivering the level of immune response that researchers were hoping for. Final phase of trials is currently underway for the vaccine that is proving effectiveness in stimulating both antibodies and T-cells.

Market Performance 1 - 31 July 2020 

  • FTSE 100 -4.01%
  • S&P 500 (USA) 5.07%
  • FTSE Europe Ex UK -0.58%
  • Topix (Japan) -2.77%
  • MSCI Emerging Markets +7.70%

Central Bank support continues 

The steps that central banks all ovr the world are taking to support their economies through this recession continues apace, helping to calm markets despite some understandably poor economic data.
European leaders reach agreement on a €750bn pandemic recovery fund consisting of both loans and grants, although the first support is unlikely to be available until late 2020, or even early 2021.
The Federal Reserve signals that stimulus will continue to flow to help counteract the economic slowdown.
The UK government will issue a minimum of £385bn of Gilts for sale in the period April to November 2020, more than has ever been issued in a whole year previously, to help fund the unprecedented government support package put in place to aid the economy during the pandemic.

Economic data insights 
Data points help to paint a true picture of the economic impact of the pandemic, and the speed at which countries may be able to stage a recovery.

  • UK housing data shows that the average price of a house in the UK has risen 2.4% since March and mortgage approvals staged a comeback with 40,000 in June compared to just 9,270 in May.
  • UK Gross Domestic Product (GDP) rose 1.8% in May but was still 24.5% below February’s level. This was below market expectations. Figures show that manufacturing and construction both staged somewhat of a recovery, whilst agriculture remained in decline.
  • Official figures show that 649,000 people have lost their jobs since the start of the COVID-19 pandemic in the UK.
  • Data from the UK Jobs Retention Scheme on 7th July showed that 9.4m jobs were currently being supported, at a cost of £27.4bn.
  • US ADP payroll numbers showed 2.37m jobs were created in June, but the more confusing announcement was the adjustment of May’s numbers from a loss of 2.76m jobs to a gain of 3.06m.
  • Chinese PMI data for June is reported and is almost exactly in line with market expectations.

The other factors influencing markets
Away from the main story which continues to be COVID-19, there remain many other factors being monitored closely by our investment partners:

  • Boris Johnson’s self-imposed July Brexit deadline looms, with the potential for an agreement seeming unlikely.
  • Tensions between the UK and China continue to rise over Huawei’s ban from the UK’s 5G network and the suspension of the Hong Kong extradition treaty.
  • China imposed its national-security law in Hong Kong that aims to subdue anti-government and pro-democracy protests that have been swelling for the past year. This is a move that is likely to amplify U.S.-China tensions and threaten the “Phase-One” trade deal and added to already heightened concerns.
  • The US government orders the closure of the Chinese consulate in Houston, raising further questions around ongoing tensions between the countries. China retaliates by ordering the closure of the US consulate in Chengdu.
  • U.S. & European trade tensions have also been rising up the agenda with the U.S. government announcing that it was looking at instituting new tariffs on $3.1bn worth of goods from the UK, Spain, France and Germany, potentially gearing up for a summer showdown with the European Union.