Thoughts and opinions & Market update from our co-CIO, Matthew Singleton

Since our last update at the start of July, we have seen further progress of our economy getting back to the “new/temporary” normal with the odd curve ball thrown in – like the one thrown by Matt Hancock for the people in the north west yesterday. Now almost all businesses can open and operate, owners of businesses in some sectors still face difficult times in making their business profitable.

One of the key sectors facing challenges is hospitality, as the restrictions in place have meant some restaurants and bars have either chosen not to open, or to only open 2-3 days per week.

I have been in 3 restaurants in the month of July and the main issue I have is consistency from place to place. This also seems to be an issue in many retail shops too. Below are some of the inconsistencies I have noticed.

  • Some restaurants/bars take the details of all visitors whereas some only take the details of the person booking the table.
  • Some have tables noticeably spaced out whereas some seem like they did before COVID19
  • Some places have staff wearing visors, some masks and some with no protection at all.

This is by no means an attack on any bar or restaurant trying to operate through this difficult time. What annoys me is that there is so much of a grey area with the guidelines the government have laid out and this can lead to mass misinterpretation.

It is similar to my views on football referee’s interpretation of the rules. All I want is consistency, whatever that might be.

On a more positive note, it feels like the roads are get busier by the day and the city centre appears to have more and more footfall as the days go by (even today Manchester city centre feels slightly busier, which I didn’t expect given last night’s announcement). Although, we are still some way from pre COVID19 activity, things are moving in the right direction.

Another topic for debate is – are we now seeing a second wave in Spain? Are we seeing a second wave in the U.S. or just a continuation of the first wave? And the key question is how do the governments around the world react to it?

I do not see another shut down like the one previously enforced by governments around the world.

There are multiple reasons for this, however, the key reason is the economy just could not cope with another full shutdown.

I think a second wave would be handled much differently for the below reasons:

  • The lessons learnt from the first wave mean that we should be much more prepared to control the spread without having to close down.
  • Testing capacity continues to increase. At the start of the outbreak in February there was no testing. Now the U.K. alone is able to test up to 340,000 people per day. Although, I still think this needs to increase to closer to 1 million per day to fully control the virus we are a good way towards that level and this level of testing capacity should make it easier to control the spread.

I think the world is now in a place where we have adapted to COVID19 being part of our lives for the time being, although, I don’t think we are going to be able to fully gauge the medium and long term impacts of this until the end of this year / early next year. For that reason I think markets could stay within the current range for the next few month’s until things become clearer.

I also think it’s worth stating that personally I would be invested in the market even with the uncertainty that’s right in front of us. This is my belief for the following reasons.

  • If you don’t need to utilise your funds in the next 3 years, you have a good opportunity to make a healthy return on your invested assets. Although, the length of the recovery is unknown, the only certainty is that at some point there will be a recovery in financial markets.

  • While you’re invested, you’re still receiving dividends from companies your invested into. Granted some companies have suspended their dividend, however today the FTSE100 is still paying an income of over 4% per annum. Whereas if your money is sat in the bank the rate of interest you’ll receive is effectively zero.

Major Market Movements Month to date.

FTSE 100               -3.5%

FTSE 250               +0.4%

S&P 500                +5.3%

DAX Xetra            +0.7%

GBP v USD           +5.9%

GBP v EUR           +0.8%

In the table above you will notice a weakening in the U.S. Dollar and an out performance by the S&P500. This is mainly down to the Federal Reserve ramping up emergency measures to boost dollar liquidity further than previously expected. This has sent the dollar index to a 2-year low although it’s worth barring in mind that the “2-year low” is closer to the 5-year dollar index average. Therefore, another way of looking at this weakness in the Dollar is that it has returned to some normality.

Sterling is still weak due to BREXIT concerns and I would expect that to correct itself once there is certainty on the how we are exiting the EU.