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Weekly Bulletin: Markets upbeat despite Trump's mixed messages

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Investment Team

5 min read

Global stock markets enjoyed their best week since July, boosted by hints at further US government stimulus to help the economy. In the UK, new restrictions and wage support hold the headlines, and the next Brexit deadline approaches.

Key takeaways

As so often in 2020, we begin with the latest virus news. It is increasingly apparent that regions and nations are at very different points in their journey with COVID-19, supporting the view that worldwide or national lockdowns can no longer be justified at this juncture. Countries throughout Europe are currently tightening restrictions, and in the UK, as we write, we await today’s update on the newest plans for restrictions.

  • UK Chancellor Sunak unveiled a new wage support plan on Friday, which would see the government cover two thirds of wages in locked-down areas. In both economic and political terms, the UK cannot afford a further nationwide lockdown, so we should expect to see more of this kind of regional support in the coming weeks and months.

  • Indeed, the UK economy continues to suffer more than most given its bias towards the service sector. High-frequency economic data shows that the momentum behind renewed economic activity is faltering again, and regional lockdowns are clearly influencing this picture. Around 10 million people in the UK are now living with additional restrictions beyond the basic national guidance.

  • Meanwhile in the US, President Trump is playing a dangerous game surrounding further government stimulus to support economic recovery. Congress remains extremely divided, despite intermittent hints (from Trump) at progress, which supported stock market performance last week. If a support package cannot be agreed before November’s presidential election, Trump could find himself punished, particularly as the economy is almost always the most important influencing factor for US voters. Challenger Joe Biden continues to lead in the polls.

  • If this absence of US government action continues, the US central bank could yet find a way to do more, as it has done so often already during the pandemic crisis. Such intervention would likely be welcomed by financial markets, and would provide a boost for areas of the market like shares and corporate debt.

Weekly market moves

  • Global stock markets saw gains over the past week, with smaller US companies the standout performers.

  • Traditional ‘safe haven’ assets such as gold and bonds were quiet, giving back some of their recent price gains. Wider commodities benefited from the pro-risk market mood.

  • Sterling weakened against most other major currencies, likely due to ongoing Brexit disagreements and rising cases of COVID-19.

What to look out for this week

  • This Thursday is the deadline for the outline of a Brexit deal between the UK and the EU. Many sticking points remain, with fishing rights in British waters among the contentious issues still on the table.

  • The EU has made an agreement on fishing rights a precondition for any wider trade deal, so this is a significant topic which will have ripple effects in other areas of any agreement. It is possible that German Chancellor Merkel will now need to step in to influence French President Macron.

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Investment Team

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