Market Outlook Report – July 2020

Market Overview

​​June 2020

​Flare up of US Covid-19 cases threatens market growth

Global stocks fell lower throughout parts of June as new measures to contain the virus were introduced. These measures look to threaten some areas of economic recovery. There have been new outbreaks reported in Germany and Beijing whilst some states in the US are reporting that their hospitals are nearing capacity. These developments in new cases of the Virus have raised fresh concerns that further lockdowns may be implemented, and the easing of regulations could be reversed. This would vastly dampen the recovery from the pandemic in the larger economies around the world.

Relevance/ Impact 

​Global Central Banks Issue Stimulus to Rescue Economies

Stimulus measures provided by global Central Banks have assisted in the equity market rally since they hit their lowest point in March.  This should lead to more optimism as historically, at the bottom of a recession when the monetary and fiscal stimulus are flowing is a time for investor confidence in the market cycle.

The Bank of England has increased the stimulus package to £745 billion to aid the economy through the impact of the lockdown. This stimulus package effectively saved the UK economy from ‘insolvency’ and saved thousands of companies from failing through lowering borrowing costs.

China has also recently stated that the country central bank is lowering the requirements on reserves, this will allow an increase in money to be released into the financial system.

Relevance/ Impact 

US Federal Elections Become Bigger Focus for Markets

The U.S. economy experienced a historic slowdown, as did the rest of the globe, but the U.S. still has relatively high infection rates and so this an incredibly high-risk factor to monitor.

Many analysts are predicting that one of the biggest risk factors present in the current market is the US Federal elections as they are becoming increasingly closer. A recovery in the stock market and the economy provide President Trump with his best chance of re-election and so this may prevent Trump from de-escalating the hostilities with China. However, if Trump’s poll ratings show him in a considerable losing position closer to the election date, he may feel his chance for victory will be increased through imposing more tariffs.

Relevance/ Impact 

Asian Economies Have Had Worst Quarter

The Asian economies are coming to the end of their worst quarter since the 2008 financial crisis. A lot of investors deserted the sector during the initial waves of the virus through fear of large falls in emerging markets. This has been worsened further by the reversal in globalisation and global supply chains being unwound. The pandemic has accelerated the fears surrounding trading food security and increased the pressure for countries to produce their own medical supplies domestically. Historically, Asia has acted as a ‘manufacturing powerhouse’ for the Western world but it appears this is changing with exports falling.

Nevertheless, moving forward the Asian markets are showing relative strength with the adoption of technology and rising wealth is creating incredibly attractive long-term investment prospects. The lockdown has created a worldwide shift to online and Asia currently offers huge opportunities in E-commerce and online gaming and so these have seen a large uplift as more countries adapt.


UK Economy Opens for Business

The lockdown measures that were implemented across the UK by the Prime Minister Boris Johnson on March 23 have led to unavoidable job losses and a contraction in the UK’s GDP. However, these measures are beginning to ease and ‘non-essential’ shops are now open, economic activity is predicted to recover slowly.  We have now moved from experiencing a sharp downturn and are moving closer to a stabilising environment.

However, many analysts remain cautious about the speed of the broader recovery and the Organisation for Economic Cooperation and Development have stated this month that the UK could be likely to suffer the worst economic damage due to the Coronavirus out of any country in the developed world.

Relevance/ Impact 

Disclaimer: This document represents the opinion of Reeves Independent only and is not intended as advice and no investment decisions should be made solely on the back of this email. Always seek independent financial advice before taking any action. Past performance is not a guide to future performance. All investments carry the risk that you will get back less than you put in.