The noise
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Boris Johnson announced a new three tier system of regional COVID-19 restrictions on Monday following cases reaching over 12,000-a-day. Johnson has not ruled out going further in his restrictions but told the House of Commons that the policy ‘could bring down the virus’. Every area of England now falls into three categories - medium (Tier One), high (Tier Two) or very high (Tier Three), depending on the local rate of infection with Liverpool being classified as Tier Three and London due for Tier Two this weekend.
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Joe Biden has surged ahead in the national polls in the race for the US presidency. Although Hillary Clinton led in the polls all the way to election night, the electoral college system in the US sees certain states have disproportionate impact on the result. In eight states that flipped from voting for Obama to Trump in 2016, Biden leads in 6 (Florida, Pennsylvania, Michigan, North Carolina, Arizona and Wisconsin) with Trump continuing to hold Iowa and Ohio. It remains to be seen how accurate the poles will be, given their shambolic record in 2016.
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China has recorded strong growth in trade, while other major economies continue to struggle with the impact of coronavirus. Exports in September rose 9.9%, while imports grew 13.2%, according to official data. The data suggests a rapid recovery in China from an initial reduction in overseas orders sparked by the pandemic.
The numbers
The nuance
Markets were mixed this week, with the US buoyed by political promises of fiscal (and more monetary) support, whilst the UK grapples with a significant uplift in cases and measures to flatten the curve. Although the fog of uncertainty has thinned since March, the economic outlook, both in the short and long term remains weak.
Coupled with this, return prospects for lower risk or diversifying assets have been driven down towards zero and constructing portfolios which minimise short term volatility has become increasingly expensive. Government bonds traditionally protect portfolios when equities fall, however when yields are close to zero or negative this correlation breaks down. We are currently examining our portfolios to see how we can mitigate for this and enhance yields in a risk controlled manner.
It is likely that markets will have false starts and suffer bouts of fear as news headlines buffer markets, but these pull backs should be used as buying opportunities. We are now looking to Q3 earnings season to give us a glimpse of corporate health. Whilst being wary of companies who rely on US consumer spending or businesses that sell to US consumers given the potential for USD weakness, we continue to prefer resilient companies which are cash generative, profitable, and less dependent on the economic cycle to deliver results.
Quote of the week
"Rethink. Reskill. Reboot." The UK Government.
The government’s now infamous ‘Fatima’ campaign urging ballet dancers to retrain as IT workers was widely mocked this week. The jokes wrote themselves as thousands on social media lambasted those at the top of UK politics, suggesting it was them who should in fact seek alternative employment. Whilst the idea of Dominic Cummings moonlighting as a Barnard Castle tour guide has a certain ring to it, the stark reality is that Britain’s vibrant art scene supports hundreds of thousands of jobs that are now on life support. Culture Secretary Oliver Dowden’s promise to invest a further £1.57 billion into saving the arts rang hollow in the wake of another ill-conceived message on the part of the government.
Source: bbc.co.uk