i-Wire: And then there was light... If we believe that tomorrow will be better, we can bear a hardship today. (Thich Nhat Hanh, Vietnamese spiritual leader) In this most depressing and challenging of years we have had a week which has finally brought us some hope with the announcement of the Pfizer vaccine study results as unexpected as it was welcome. The dedication, innovation and determination of the global biotech and pharmaceutical industries to produce a whole array of vaccines and prepare for the vast logistical challenges of worldwide immunisation is both humbling and inspirational. Once again, our appreciation of who are the true ‘key workers’ in our society has become self-evident. The vaccine will make little difference to the challenges we face this winter but is a beacon of hope for the spring and beyond. Turning to politics,  it is not our role to exhibit personal preference but we suspect most of us will be pleased to see the back of Donald Trump and his chaotic, abrasive and divisive style of government. We welcome instead President-elect Joe Biden who we hope will heal social divisions at home and restore the US’s traditional moral authority and leadership abroad. One senses [...]

i-Wire: In the eye of the Storm (again) These continue to be very difficult times for global markets which sold off heavily in the second half of October. They now face a uniquely challenging week as the re-imposition of lockdown restrictions in Europe is simultaneous with the US going to the polls in the most bitter and divisive election for decades. This has the potential to be a volatile few weeks which could test investors nerves to the full. Our counsel, as in March and April, is that at times of severe market stress the best policy is to think long term and only make changes to portfolios when there is more clarity as to the outlook yet good opportunities still present themselves. At the risk of being overtaken quickly by events, this is our assessment of the current market background The severity and magnitude of the Covid pandemic, along with the response from Central Banks and governments, will remain the main driver of market direction for the remainder of this year and next. The US election is more of a transient short-term factor in terms of market movement, though one that has the potential to be explosive. In the [...]

i-Wire: Market Update 6th August   Market Update: The Other Side of Summer When it comes to my choice of Elvis I’ve always been in the Costello rather than Presley camp and the titular track could be written for these times, conjuring the sound of glorious summer sunshine but featuring  biting lyrics that paint a picture of ‘contradiction and confusion’ and a sense of great unease. We’ll  have to wait till the other side of summer and indeed many months beyond to get a clearer picture of how this dreadful pandemic will impact economies and financial markets. The crash and the rebound were just the beginning and we are now marking time in an uneasy truce balancing the conflicting needs of public health and economic welfare. The current state of the pandemic is so well documented in every media format that there is no need for repetition, instead we need to  ponder as to what the market is discounting and be aware of the changes in market behaviour, of which there have been several, since I last wrote at the beginning of July. Equity markets are similar levels, the changes are elsewhere. Investors have since April been taking a glass [...]

Markets rebounded very strongly in May and early June before a nasty dose of reality last week led to renewed heavy falls in all global stock markets.

i-Wire: Market Update 26th May   Market Update: Floor Found I’ve included the usual ‘what’s going on’ charts and tables but I’m not looking to overload you with too much ‘strategizing’ as we have reached something of an equilibrium in financial markets with far less volatility thank goodness. Instead I’ll look forward to one of the issues that will be influencing market sentiment as we slowly emerge blinking and a bit fearful out of lockdown, whether inflation may be due for a surprise comeback after all.   Markets The chart shows the returns from markets in their own currency and the table the sector fund average return which for overseas sectors includes the translation back into sterling and, with the weakness of sterling this year, shows what a laggard UK equities have been compared to other asset classes. IA Sector Average 2020 ytd (%) UK All Companies -21.6 UK Equity Income -24.1 Europe ex-UK -10.6 North America -0.2 Japan -3.7 Asia Pacific ex-Japan -8.2 Global Emerging Markets -13.4 UK Gilts 10.6 UK Index-Linked Gilts 11.3 Sterling Corporate Bonds 0.5 Sterling Strategic Bond -1.5 UK Direct Property -2.3   Figures from Financial Express Analytics This table, with data courtesy of the [...]

i-Wire: Market Update 13th May   Market Update: The Ghosts of Markets Past We are still a very long way from clarity as to the long-term consequences of the pandemic as this dreadful virus continues to totally dominate the news flow, and of course our lives too.  After some thoughts on the current and seemingly contradictory messages the markets are sending, I’ll turn instead to what they aren’t thinking about now but could well do so in the coming months once they begin to look beyond the pandemic (clue is in the title!). Markets As usual, I’ve included a chart that shows the returns from markets in their own currency and a table which shows the sector fund average return which for overseas sectors includes the translation back into sterling. As the pound has been weak this year this enhances returns from overseas markets making the US even more of a winner, and the poor old UK look even more of a loser. IA Sector Average 2020 ytd (%) UK All Companies -22.5 UK Equity Income -24.1 Europe ex-UK -14.2 North America -4.3 Japan -8.0 Asia Pacific ex-Japan -9.4 Global Emerging Markets -15.4 UK Gilts 10.0 UK Index-Linked Gilts 9.0 [...]

i-Wire: Market Update 27th April Market Update: Searching for the new normal Equity markets have recovered strongly and are now trading with far less volatility. We are concerned that this recovery may be too optimistic and markets could retrace some of these gains as they are now pricing in a lot of good news. They are taking the visibility of a peak in virus infections and the size of the economic stimulus packages and assuming that the recovery in growth and earnings will be V-shaped. Equity markets are trading at more expensive P/E valuations than they were before the outbreak of the pandemic. The one day ‘negative’ oil price was a technical event resulting from the way oil futures trade but the oil price has fallen from US$60/bl to US$20/bl and looks set to remain at these low levels for many months. Government Bond Yields offer negligible yield and minimal value but we see opportunity in corporate bonds, especially investment grade where spreads have widened significantly but default risk should still be low. In this note we will look at: How markets have performed during the crisis. The outlook for the global economy, and why you should handle forecasts with [...]

Oil Price Crash…One Day Wonder Just when you thought you’d seen it all, an amazing day in the oil markets saw the price of US oil fall below zero to a price of minus US$37/bI, in other words you couldn’t even give oil way, you had to pay someone to take it from you. How did this happen? The answer is both fundamental and technical  Firstly, a bit of background, there are two major benchmark oil prices Brent and WTI  Brent is extracted from the North Sea and used to price oil from Europe and the Middle East WTI, or West Texas Intermediate, is used to price US oil, predominantly from Texas, Louisiana and North Dakota The price of both is usually close, any differential being storage and transportation cost with Brent typically a dollar or so pricier. The price of oil has collapsed from over US$60/bl to around US$25/bl this year as demand has totally collapsed whilst a price war between OPEC and Russia flooded the market with oil from February. This was only partly resolved by production cuts in a deal brokered between OPEC and non-OPEC on Easter Sunday but there is still way too much oil around [...]

i-Wire: Market Update 14th April Equity markets have recovered strongly in the last two weeks We are concerned that this bounce may be too optimistic and do not think that a floor has yet been established by markets with any level of confidence Economic growth and corporate earnings estimates have been slashed with falls of up to 30% on an annualised basis in both growth and earnings now increasingly being ‘guesstimated’ Government Bond Yields have collapsed and offer minimal value but we see opportunity in investment grade corporate bonds where spreads have widened significantly but default risk should still be low. UK dividends could be cut by up to 40% this year, though this should be seen in the context of very few alternative income sources with interest rates so low. We have been making/advising a number of changes to portfolios to improve their quality and robustness. In this note we will look at How markets have performed during the crisis What next for the markets The longer term outlook for markets UK Dividend cuts What we are doing on portfolios Conclusion These are the strangest days. I’m writing this note on Sunday afternoon, sitting in the sun, accompanied by [...]