Market Overview June 2020
Boris Johnson announced on May 10th that the UK would start easing some of the lockdown restrictions. This was not received well by the media who pounced on the perceived lack of detail in the message. Opposition leader Kier Starmer was quick to criticise and say what he wouldn’t do, without giving any details himself about what he would do (the joys of being in opposition).
Brexit talks continue, with the EU demanding that the UK give ground on key areas such as fishing and level regulatory playing field, but prime minister Johnson is sticking to his initial line that the UK would not concede ground in these areas and would instead forge its own policy, regardless of the consequences to a potential deal.
The Bank of England is openly considering negative interest rates and expanding the scope of asset purchases to include riskier securities as it runs low on conventional easing space. It would be a surprising course of action given the apparent ineffectiveness of similar policies in other countries such as Sweden, but what we’ve seen over the past few months is that nothing is off the table. The UK actually sold gilts at negative rates for the first time in history in May.
UK March unemployment data released in June (always a lag with unemployment date) showed a huge increase, though this was entirely expected, and data in general is showing that the UK appears to be in a very deep recession. Stock markets seem to be continuing to discount this news though and push ever higher as expectations of future recoveries are priced in.
After months of intense talks, European Union leaders look like they’ve finally agreed on a rescue package for the bloc. Accelerating the shift to climate neutrality is a key pillar of the €750bn recovery plan, aiming to increase energy savings, boost the production of renewables, and speed up the transition to clean transport.
Germany’s Supreme Court ruled that the ECB’s plan to increase purchases of Italian and Spanish government bonds is legal. Whilst the German courts do not have any binding legality over the ECB, as the most influential member state its ruling will be seen as significant.
Most of Europe has at least somewhat reopened parts of their economies and relaxed the harshest lockdown restrictions. This comes at a crucial time in the fight against the virus as a potential second wave hangs over decision-makers. Spain, Italy, France and others are beginning to reopen bars and restaurants, while Russia has also been easing lockdown restrictions, somewhat surprising given their infection and death rates.
President Trump has issued a ban on US pension funds holding any Chinese assets, in a move first touted earlier this year. This is in response to US assertations that China deliberately hid the extent of its own coronavirus outbreak and may in fact have purposefully allowed the spread to other countries (a claim heavily refuted by China and not held by other world leaders). The two countries seem set to continue their trade war, which may well have negative implications for risk assets.
The US has begun easing restrictions on movement and gatherings, seen by some experts as premature, as president Trump demands the American economy get back up and running again. Nearly 20 million people are now unemployed in the US as a result of the coronavirus lockdown measures.
Following the murder of George Floyd in Minneapolis, mass protests erupted and have since turned violent. This is concerning for a number of reasons, firstly that there has been yet another killing of an unarmed black civilian by police – the officer in question has since been arrested and charged with murder – and that there seems to be no response by authorities as to how they intend to stop this from happening again. Secondly, that so many people gathering in crowds even before lockdowns are fully eased is damaging to the attempts to stem the virus outbreak.
Chinese demand returning to normality after lockdowns were eased and as the economy is getting going are helping push oil higher after hitting historic lows at negative $40 per barrel.
Following China’s imposition of a new security law the US said that it can no longer certify Hong Kong as having political autonomy from China. This may put Hong Kong’s special trading status with the US in doubt. The law in question makes secession (breaking away from China) and subversion (undermining he power or authority of central government) illegal. Protestors feel these laws amount to China seizing control of Hong Kong
The Chinese city of Wuhan, where the virus began, has seen an increase in the number of new cases in early May. The government said they would test all 10 million residents. President Xi Jinping pledged to make any coronavirus vaccine universally available once its developed.
In Japan, Softbank’s Vision Fund lost $17.7 billion last fiscal year after writing down its stakes in WeWork and Uber, with CEO Jack Ma set to leave the board in June after 13 years as a director. This is a significant setback for the fund and Softbank and highlights what many at the time considered to be overpriced and poorly undertaken investments.
Please note: The opinions expressed in this update are those of A&J Wealth Management Limited only, as at the 2nd June 2020 and are subject to change. The update is for information purposes only. Source: Financial Times.