Reflation Reality Check

As rain and wind flush out the heat of the last few months, there’s a noticeable chill in the air for capital markets. For investors, things looked bright between June and August. The economy was finding its feet again, lockdown restrictions continued to lift, and central bankers were committed to indefinite monetary accommodation. As such,…

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FinCEN files – don’t bank on banks?

Given the roller-coaster week it has been for markets, the economy and everything else, you would be forgiven for missing a story about bank reports. But this week’s release of the FinCEN files – so called after the US Financial Crimes Enforcement Network – contained plenty of intrigue, from fraud and money laundering to Russian…

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Road to Recovery

A Recovery On Hold

September continues to bite equity markets. Stocks everywhere wobbled again this week and even though they bounced back, the S&P500 is down around 8% in US Dollar terms for the month. UK investors might notice less of a fall, with global equities down just 1% in sterling terms. This is partly due to the fall…

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Federal Reserve

Can the Fed redress a 40-year imbalance between workers and savers?

Who does monetary policy work for? The simple answer is everyone, but given that one of the defining aims of a central bank is to ensure monetary and financial stability, perhaps a more historically accurate answer is savers (owners of financial assets). Through interest rates and other means, central banks hope to provide a stable…

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Brexit bother as Boris’s Mexican stand-off misfires

Having spent most of 2020 hoping things can get back to normal, Britain’s political news over the last couple of weeks has left us thinking ‘be careful what you wish for’. Stalling Brexit talks, political disarray and the potential for a full-blown constitutional crisis all created that familiar feeling of prepandemic times. Indeed, as if…

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Global Stock Markets

Taking a step back to look forward

Stock markets have stabilised and started trading sideways, in a sign of healthy consolidation following their extraordinary recovery rally since late March. Notably, the darlings of the recovery, namely US large cap tech and growth stocks, are no longer the leaders. This bodes well for a gradual sentiment shift among investors. Capital is no longer…

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Politics get in the way of Chinese investment

In economic terms, China is one of the best placed of any major economy to recover from the pandemic. The first country to suffer heavily from Covid was also the earliest to emerge from lockdown, with life now well on its way back to normal in the world’s second largest economy. Wuhan, a city of…

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Credit where credit is due

Central bankers have played a vital role throughout the COVID crisis. With the global economy in the grip of its deepest-ever recession, the world’s central banks have had to inject huge amounts of liquidity into the financial system and government coffers to stop the health crisis turning into a financial catastrophe. The US Federal Reserve…

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Stock Markets

Frictions and contradictions

September has ended what now feels like a ‘goldilocks’ summer for investors, and political, societal and capital market frictions have returned to the stage with a bang. However, the fact that stock markets have not simply plunged on bad news, but have instead remained surprisingly stable, is a good indication that economic and market dynamics…

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August gets technical

Despite the sharp sell-off we saw into the end of this week, capital markets overall have cruised through the summer. The US stock market soared past its pre-pandemic highs, powered by America’s mega-cap tech giants, while others (with the exception of Japan) saw more muted price action. With traders and the investing public away in…

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Inflation ahead

Inflation now a ‘Made in China’ product

We are in a new era for central bankers. Last week, US and global monetary policymakers convened for their annual Jackson Hole conference, headlined by a speech from US Federal Reserve (Fed) Chair Jerome Powell. But Powell’s keynote address was noticeably different from previous years – and not just because neither speaker nor audience were…

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Market dynamic of a K-shaped recovery

Markets’ summer holidays are over. Throughout August, risk assets made some impressive gains, while the global economy remained in its deepest ever recession. After equities were then catapulted to eye-watering valuation levels, the end of this week saw a sharp reversal. On Thursday, the US’ S&P 500 – which soared past its pre-pandemic highs in…

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US bankruptcies: expected but not altogether undesirable

As we have written many times, the deepest global recession in the post-war period is no ordinary one. With activity suppressed by government diktat, it is hard to gauge how much of the plummet in demand is ‘real’ and how much is just a – hopefully short-term – virus response. To judge where the forced…

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Apple stock split has domino effect on indices and trackers

Next Monday (31 August), Apple will split its shares four to one, meaning holders of Apple stock will have four shares trading at a price of $125 instead of one share at the current price of $500. This is Apple’s fifth stock split, aimed at making the stock more accessible to new investors (it is…

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Big tech gets bigger while the Fed takes the easy option

In a week where Donald Trump kicked off his re-election campaign in earnest, global investors showed it is indeed “America first”. US equities continue to push at all-time highs, having recovered everything lost in March’s frantic sell-off – and then some. If the stock market soaring to new heights while the world languishes in its…

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Car Market

Auto-recovery: turnaround or short-term bounce?

Like most industries, the automotive sector has been hit hard by the pandemic. Carmakers were already struggling well before the first COVID case came in, with changes to emissions regulations, a global manufacturing downturn and structural shifts in demand providing fierce headwinds. A global economic shutdown then came at the worst time it could, as…

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Apple vs Epic Games

Apple finds itself fighting an Epic battle

And Apple wept, seeing as it had no more worlds left to conquer. In 2018, Apple made history by becoming the first private company valued over $1 trillion. That milestone was 42 years in the making; but just two years later, Apple is worth double that. To make that feat even more incredible, the meteoric…

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Stock Market

Fed leaves bond investors with that sinking feeling

Capital markets were mostly steady – if a bit on edge – this week, as they have been for most of August. At least the US maintained positivity, although the extent of gains were not spectacular. Even so, both the Nasdaq and S&P 500 indices surpassed their February peaks in midweek trading, leaving the stock…

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Rainy Day Fund

The US government’s intriguing $1.7 trillion rainy day fund

These extraordinary times for the global economy have forced the world’s central banks to extraordinary measures. As usual, the US Federal Reserve (Fed) has been one of the chief protagonists during the emergency, cutting interest rates close to zero and funneling trillions of dollars into keeping the financial system afloat. But in recent weeks, we…

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UK Recession

Please sir! How long will the UK stay bottom of the class?

Throughout the pandemic, the UK has been beset by a host of unflattering comparisons. The statistics on virus cases, deaths and other health figures have consistently put Britain as one of the hardest hit countries in the world. This week, the press focused on a different kind of bad news: In GDP terms, the UK…

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Coronavirus - the sequel?

COVID II the sequel – as scary as the original?

The pleasures, and then increasing discomfort, of the UK’s unusually broiling August weather offered a welcome distraction from the seemingly never ending COVID news flow of gloominess. As the heatwave came to an end with a thunderous bang, so too did many of the UK’s summer freedoms. The reintroduction of widespread lockdowns at local level,…

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Property Market

Property funds not such hot property

Property can be an attractive investment. Like everything else, property prices have their ups and downs, but investing in ‘real’ assets can appear to hit a sweet spot, relative to financial assets like equities, bonds or cash. There is enough of a positive yield that holding it is preferable to holding cash, and not so…

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Unemployment – a tricky economic variable

At the Bank of England’s (BoE) latest meeting this week, a more optimistic than expected short-term outlook for Britain’s economy emerged. One of the most notable forecasts was its call on employment. While furlough and other emergency government measures have allowed many to keep their jobs and paycheques, some fear these policies are just papering…

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The New Normal

Living with COVID- settling into an interim ‘new normal’

Compared to the rest of 2020, July proved almost uneventful as global capital markets consolidated strong gains made during the previous quarter, with only emerging market equities and gold delivering notable advancements (see returns table further below). At the other end of the scale, poor returns from Japanese and UK equities confirms the trend of…

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Summer sunshine beckons, but politics still casts a long shadow

As July ends with stifling temperatures, thoughts can turn to the month ahead. August capital markets can be either quiet or decidedly choppy. As investors go on their summer holidays, daily trade volumes decline and liquidity drops out of the market – meaning even small buying or selling pressures can have outsized effects. Of course,…

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Stock Market

Earnings season round-up: plenty for markets to mull over

Although stock prices have come down recently, the ratio of price to earnings remains high enough to make investors squeamish. As such, eyes are now turning to the recent slew of earnings reports from the second quarter. Q2 was, of course, dominated by virus news, global lockdowns and a record slump in economic activity. And…

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US Economy

US partisan politics could leave states feeling the pinch

In dealing with the economic crisis – just as with the virus itself – policy is crucial. Throughout the worldwide economic shutdown, US authorities have joined their global peers in providing intense and sustained support to a shell-shocked economy. The government’s fiscal aid programs, backed by the extraordinary bond purchasing programme from the Fed, has…

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EU recovery package: European, limited but still historic

European Union (EU) leaders never let a crisis ruin a good argument. With the global pandemic forcing Europe’s economy into its worse slump since the second world war, EU heads of state butted heads during a tense Brussels summit, for four days and four nights. Their aim was to agree terms on a coordinated spending…

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Going for gold

Gold prices have been on a good run lately. On Thursday, gold reached an intraday high of $1898 per troy ounce, within touching distance of its all-time high of $1921 back in 2011. Physical or safe-haven assets typically benefit from periods of unease or uncertainty. Gold’s credibility comes partly from its centuries-old use as a…

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PPE = Politics, Pressure and Economics

In this delicate economic and financial environment, the world of politics can have a big impact on capital markets. This week, we saw both heads of that political beast, with news stories first buoying and then bruising market sentiment. Earlier in the week, Europe’s top politicians slogged through marathon negotiations to reach a historic deal…

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Discomfort of disappearing safety nets

The summer season has started in earnest and yet, unsurprisingly, this year everything feels different. Most of us are relieved restrictions are easing, meaning we can go about our lives more like how we were used to until a few months ago. While in lockdown, many may have reasonably expected that – in return for…

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Sector rotation or just a timely recalibration?

Investment professionals have many different methods for slicing up the investment world. Typically, we tend to group assets together in terms of region, asset class or sector. Looking at things sector by sector is helpful for judging what to overweight and when, since different industries will react differently to underlying economic conditions (for example, technology…

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US election: Joe is no longer Biden his time

Americans head to the polls in just under four months, and as we edge ever closer to the election, presumptive Democrat nominee Joe Biden’s lead over Donald Trump has grown steadily wider. According to the latest figures from FiveThirtyEight, the former Vice President has the support of 50.3% of the US public, while the current…

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