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Weekly Bulletin: Wary investors are in wait and see mode

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Investment Team

5 min read

Despite continued signs of improving global economic activity, financial markets were cautious last week, responding instead to still rising COVID-19 cases in key regions. Meanwhile, the most recent Brexit negotiations yielded little progress.  

Key takeaways

Ongoing rises in new virus cases in the US (as well as parts of emerging markets) are worrying. Better rates of testing may be pushing US numbers higher, but are unlikely to be the only cause, particularly as we are also seeing death tolls picking up as regional economies reopen. Washington is rapidly joining the likes of Florida, California and Texas as a ‘problem state’ for the virus.

  • More broadly, though, the way governments react to new or growing pockets of the infection has clearly been evolving, with human costs being weighed more explicitly against economic costs. Responses are increasingly localised and targeted, while treatments are improving and progress on a vaccine is evident.

  • In economic news, there are ongoing signs that the economy is beginning to pick up, but this is not occurring at the same rate across all regions. According to some estimates, US economic activity could return to pre-pandemic levels by mid-2022, with the UK and eurozone following in 2023. The likely course of this recovery would involve a strong boost to economic activity in the second half of this year, driven in part by pent-up demand for goods and services, followed by a slower pace of improvement in subsequent years.

  • This theory is supported by last week’s retail spending news, which showed strong recovery in the US and UK, illustrating pent-up demand and relatively cash-rich consumers. Nevertheless, consumer confidence readings are not quite so energetic, pointing to possible nerves about the outlook for household incomes. As consumer spending is the cornerstone of most developed economies (and thus a big part of the world economy), we will be watching these figures closely.

  • Playing out against a backdrop of pandemic noise, the latest round of Brexit negotiations appeared to bear little (if any) fruit. As negotiators take a break, both sides are certainly talking down progress, though this could also be intended to influence the other side to make a deal. We expect poor news flow in the months ahead, likely putting sterling under pressure later this year.

Weekly market moves

  • With investors apparently nervous to take on more risk, most major global stock markets dipped last week. Bonds rallied, pushing yields down further (price and yield are inversely correlated).

  • Sterling had a good week, rising against the US dollar at the expense of the share prices of large UK companies.

  • Silver was the standout performer among commodities, playing catch-up with gold’s strong run.

What to look out for this week

  • In the US, current relatively generous unemployment benefits (which include additional payments of $600 per week) are due to expire on Friday. Policymakers in Congress must introduce another government programme to support unemployment insurance within the week if current support levels are to be maintained.

  • Economic data due for release this week includes growth figures for the second quarter of the year in the US and euro area.

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About the author

Investment Team

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