Market Outlook Report – August 2020

Market Overview

Gold shoots to a nine year high on fears of economic hit

The price of Gold has continued to rise even higher as we reach the end of July and has risen over 4% in the last week alone, when denominated in US Dollar. This is the biggest weekly gain in over three months for the precious metal price. This comes as data analysed from the first two quarters of 2020 revealed that investors have stashed a record $40billion of cash into funds that are Gold backed.

Relevance/ Impact 

Coronavirus: COVID-19 vaccine is vital but may not be accessible for another 12 months

As lockdown restrictions are easing around the globe, people are starting to resume their day to day lives but Coronavirus still poses a deadly threat and there are currently no available vaccines proven to protect the body against Covid-19.

 Medical researchers worldwide are working relentlessly to change this fact and find a cure to the virus which will allow us to safely return to normal. This is of significant importance to the majority of the world who have not had the virus and are therefore still vulnerable

Relevance/ Impact 

Brexit: We Are Still Some Way Off a Deal but Almost out of Time

Following recent negotiations, both the UK and EU have stated that they are no closer to reaching a post-Brexit trade agreement and in reality, a deal appears ‘unlikely’. EU negotiator Michel Barnier has said their position needed to be "better understood and respected" by the UK if an agreement is to be achieved in time. The UK has also been heavily criticised for providing no clear future plans to provide state support for businesses in need. However, the Prime Minster has formerly stated clearly that it will become easier for the UK government to provide support and backing to those firms struggling. Johnson has also responded by saying that he does not believe it is appropriate for us to continue to obey EU laws when we are not in the EU but that he is more confident about the prospects of a deal. If we are to approve any deal before the transition period ends in December, we would need a preliminary agreement by October at the latest.

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UK economic recovery: The economy has 'clawed back half of lost ground' but recovery could be longer than anticipated

The UK experienced the deepest and most abrupt downturn for over three hundred years due to Coronavirus and as a result the economy shrunk by 25 per cent. However, we can now see that a recovery has started, and the UK Economy has managed to claw back almost half the fall in output experienced during the lockdown.

The recovery has so far, followed the desired ‘V-shaped’ recovery path as the economy has bounced back and Bank of England’s Chief Economist has stated that we are on track for a quick revival and is hoping for a ‘swift and full bounce back in activity.’. A speedy bounce back to normal activity, lifestyles and incomes is what we have all been hoping for. Unfortunately, this level of recovery not guaranteed to continue as various economists fear that the path to full recovery could be much longer than most are anticipating.

Relevance/Impact

The Future Impact of November US Federal Elections on Markets

Within an already volatile economic environment, the U.S Presidential election is considered by many investors to be a major risk to the markets as we move towards November.

The principal threat to markets would be the re-escalation of trade tensions between the US and China which could come as the potential re-election strategy of President Donald Trump. However, most investors are of the opinion that for Trump to win there needs to be a rebound in the US economy which is less certain to occur this summer as once predicted.

A win by the Democratic nominee, Joe Biden, may likewise present risks to the markets. Among Biden’s policy proposals are a partial reversal of the Tax Cuts rolled out by Trump in 2017. These tax cuts were a major advantage for many US corporations and played a significant role in helping to drive up the profitability of companies in the S&P 500 index.

Relevance/ Impact 

China: Economic Recovery Continues for The World’s Second Largest Economy

According to sometimes questionable local data, China has been experiencing the coveted V-shaped recovery and driven by strong Retail interest the Shanghai Composite index has climbed over 15% at the beginning of July to highs not seen since 2018. This apparent economic recovery is amid improving economic data in China and a noticeable slowdown in coronavirus cases. China has also recently announced that GDP rose from the previous year by 3.2% in quarter two.

Meanwhile increased geo-political tensions are escalating with China adopting a combative and aggressive stance towards various issues and countries including the US, UK, India and Australia. While the implications of these actions are challenging to predict, there may well be unintended and far reaching consequences if tensions escalate further.

A further issue for the Government to deal with that is less visible is the risk of flooding in the Yangtze valley with some 400m people potentially at risk should the heavy rains continue.

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.

Sources:

Gold shoots above $1,800 for first time since 2011; https://www.ft.com/content/b5d9e57f-74f6-4445-88bb-ca6ddff20525

Oil prices edges up on weak dollar, U.S.-China tensions weigh;  https://www.reuters.com/article/us-global-oil/oil-prices-edges-up-on-weak-dollar-us-china-tensions-weigh-idUSKCN24P04M

Weekly Market Round Up; https://www.psigma.com/psigma-voice/weekly-roundup/

Coronavirus vaccine: UK government signs deals for 90 million doses; https://www.bbc.co.uk/news/health-53469269

Government to develop £100m Covid-19 vaccine manufacturing centre; https://www.theguardian.com/world/2020/jul/23/government-to-develop-100m-covid-19-vaccine-manufacturing-centre

New study reveals Oxford coronavirus vaccine produces strong immune response; https://www.ox.ac.uk/news/2020-07-20-new-study-reveals-oxford-coronavirus-vaccine-produces-strong-immune-response

Brussels to warn time is running out for Brexit deal; https://www.ft.com/content/272974a2-1d25-4a1a-aab4-b4bcfe2bbc3a

Fears EU-UK trade talks will bear no fruit until autumn; https://www.ft.com/content/38223a68-c6b6-46e9-847e-f112af552a0e

Post-Brexit deal: What's happening in the UK-EU talks?; https://www.bbc.co.uk/news/uk-politics-53518641

Cornoavirus: UK economy has 'clawed back half of lost ground'; https://www.bbc.co.uk/news/business-53473616

'V' good? How Britain's economic recovery is shaping up; https://uk.reuters.com/article/uk-health-coronavirus-britain-economy-gr/v-good-how-britains-economic-recovery-is-shaping-up-idUKKCN24O24F

UK economy rebounds more slowly than expected; https://www.bbc.co.uk/news/business-53400721

UK economic recovery tracker: what the latest data on activity are signalling; https://www.ft.com/uk-econ-tracker

Markets are right to be nervous about the US election; https://www.ft.com/content/af5ee2c0-d53c-4437-8b98-5e8341ffbcf5

How The Markets Will React To The 2020 Election; https://www.forbes.com/sites/simonmoore/2020/07/18/how-the-markets-will-react-to-the-2020-election/#44b9ff4b5ee1

Chinese GDP grows 3.2% in second quarter; https://www.ft.com/content/4a0f9dca-b48c-453f-bfc1-2c6c8b55682a

China GDP: first major economy to show a recovery from coronavirus damage with 3.2 per cent growth in second quarter; https://www.scmp.com/economy/china-economy/article/3093371/china-gdp-economy-avoids-recession-second-quarter-growth-32

Coronavirus: Chinese economy bounces back into growth; https://www.bbc.co.uk/news/business-53399999