Weekly multi-asset desk views

Weekly Review: 21 August 2020

Weekly Mag updates

Market and economic review

The S&P500 closed at an all-time high on Tuesday, surpassing its previous high on 19 February, before the expected economic damage of the pandemic took a hold on financial markets. Markets are backed by unprecedented amounts of both monetary and fiscal support, which appears to be providing investors the security they need to drive asset prices higher. As an example of a continuation of this theme, this week we heard of potential further measures from Germany, which may see the country’s job support scheme extend from one to two years, amounting to additional stimulus of €10bn. Where we haven’t seen such progress is in the US, where bipartisan disagreement remains on the extent to which they should provide more support. On the data front, provisional PMIs for July painted a mixed picture with countries seeing divergent fortunes, whilst the US labour market took a step backwards after the meaningful decrease in weekly claims we saw last week.

COVID-19 update: US case figures continue to decline as EU second wave impacts mobility

Global cases reached over 22.5m this week according to Bloomberg, with figures still being driven by the US, Latin America and India. In the EU we are continuing to see a resurgence of virus cases, with the UK, Spain, France and Germany seeing record second-wave caseloads this week. Italy, who were previously appearing to fare relatively well, are now seeing a pickup in cases and have reimposed several containment measures including the mandatory use of facemasks in some outdoor spaces.

Caseloads in the US ‘sun-belt’ regions are continuing their steady decline following the imposed containment measures some weeks ago, with death rates also declining. Whilst this downward trend continues it is important to note that the decline is from a high base, with roughly 40-50,000 people per day being diagnosed with the virus, compared to c.1.5k daily cases recorded in Germany this week. In Asia we are seeing a divergence of success in virus developments: whilst citizens of Beijing are no longer required to wear masks in public places as cases continue to decline in the capital, South Korea’s outbreak appears to be spreading nationwide as 324 cases were reported on Friday.

In terms of consumer activity, the EU has seen a drop off in mobility since early August, whilst in the US mobility and consumer spending appears to be tentatively returning following the noted drop in virus cases.

On the vaccine front, Pfizer and its partner BioNTech has said that a vaccine could be ready for regulatory review by October. Meanwhile, Johnson & Johnson confirmed on Thursday that it plans to test its vaccine on as many as 60k people and is set to begin to do so in late September.

July PMIs show divergent fortunes, whilst the recovery in the US labour market takes a step backwards

On Friday provisional PMIs for August were released, providing an indication of how the global economy has performed through the month so far. The composite PMI from the Eurozone fell to 51.6 from a 54.9 print in July, which missed the consensus of 55 by some way. The headline figure can be explained by a fall in the services component to 50.1 from 54.7 in July, which doesn’t come as too much of a surprise given the slowdown we have seen in mobility, retail footfall and restaurant bookings in both France and Germany. The manufacturing component remained stable at 51.7 (down from 51.8 last month).

Looking elsewhere, Australia’s services PMI dropped significantly on the back of localised lockdowns, falling to 48.1 from 58.2 in July, and the prints from Japan showed little change month on month. The tone in the UK was somewhat more upbeat with both services (60.1) and manufacturing (55.3) beating expectations, resulting in a composite print of 60.3, up from 57 last month.

It was a similar story of continued recovery in the US, where the manufacturing print came in at 53.6 and the services print at 54.8, both beating consensus expectations and marking a significant increase from last month. The composite printed at 54.7, up from 50.3 in July. Whilst in the US, the weekly initial jobless claims came in higher than expected at 1.11m for the week ending 15th August. This fell short of the consensus forecast of a 920,000, and somewhat undoes the progress made last week when the reading dropped under 1 million for the first time since the start of the pandemic. 

Outlook

As we move into next week market focus will continue to be on the developments of COVID-19 in the EU and the US, along with the associated impact on high frequency economic activity data. The main event for markets next week will likely be the Jackson Hole summit on Thursday and Friday, where an array of central bank speakers are expected. In terms of the highlights, we’ll hear from Fed Chair Powell on the subject of the monetary policy framework review, and from Bank of England Governor Bailey.

Elsewhere, it looks to be a fairly quiet calendar for markets. In politics, next week will see the Republican convention in the US with just over 10 weeks to go until the US presidential election. Meanwhile on the data front, the weekly initial jobless claims in the US will continue to get attention, particularly after this week we saw the biggest increase in claims since the start of the pandemic. Otherwise, earnings season draws to a close next week with the few remaining reports from the S&P 500 and STOXX 600.

 

Important information

5-year performance record to 30 September 2020

  Calendar year returns   12-month rolling returns  
  2019 2018 2017 2016 2015   2019-2020  2018-2019  2017-2018 2016-2017 2015-2016 Currency
Insight's broad opportunities strategy (pooled) (GBP) 13.13 -4.99 10.13 5.05 -1.19   -3.60 5.80 2.18 6.82 5.45 GBP
3-month GBP LIBID 0.68 0.60 0.23 0.38 0.45   0.36 0.70 0.50 0.21 0.42  


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