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01 September 2020

Mixed Week for Global Markets

James Rowbury, Investment Research Coordinator, Redmayne Bentley

Global markets offered us a mix of returns last week, as a surge in Coronavirus cases compounded fears of a second wave emerging in Europe. Although the FTSE 100 lagged slightly, US markets made consistent gains with much of the focus towards the Jackson Hole central banks meeting at the end of the week.

As companies stopped pay-outs in response to the pandemic, global dividends have suffered the worst quarterly fall in a decade, with over US$100bn wiped in the three months to June. According to Janus Henderson, total shareholder pay-outs globally dropped by a fifth to US$382.2bn, the lowest second quarter total since 2012. Companies including Boeing, Royal Dutch Shell and Westpac cut or suspended their dividends in order to support their balance sheets. In the best-case scenario, dividends are expected to fall by 19% this year and 25% in the worst-case. Despite the cuts, global dividends are still expected to exceed US$1tn this year and next. Nevertheless, 2020 will be the worst year for dividends since the global financial crisis, with the UK and Europe being the worst-affected regions.
 
The Organisation for Economic Co-operation and Development (OECD) has stated that the UK was the hardest hit by the pandemic among major economies, from April to June. The economy experienced its biggest slump on record as lockdown measures drove the country into a recession. The 20.4% contraction was well above the 9.8% fall for the 37 OECD nations as a whole. On the other hand, the G7 group of industrialised nations experienced a drop of 10.9%, while the Eurozone suffered a 12.1% decline. According to Chancellor Rishi Sunak, the UK economy performed worse than its EU peers because it relied on the worst-hit sectors including shopping, services, and hospitality. However, as restrictions eased, the focus has turned to the strength of the recovery. For the UK, the evidence is mixed, as data suggests that retail spending is back to pre-crisis levels, but other sectors continue to struggle. Economists believe it may take a few years for the economy to get back on track, while others fear unemployment could jump over 10% in the meantime.

The Trump administration is considering bypassing normal US regulatory standards in order to fast-track an experimental Coronavirus vaccine from the UK for use in America. One option would involve the US Food and Drug Administration providing an ‘emergency use authorisation’ in October for a vaccine being produced in a partnership between AstraZeneca and the University of Oxford. The US government’s scientific agencies have stated that a vaccine would have to be studied in 30,000 people to pass the threshold for authorisation, however, so far AstraZeneca’s study has only enrolled 10,000 volunteers and if successful, President Trump could give them the green light. Providing a vaccine before the election could allow US President Donald Trump to gain political advantage. However, avoiding normal government guidelines and rushing through emergency authorisation could damage the public’s confidence about the safety of the vaccine.

The US and China have held talks over their phase-one trade deal, after discussions were delayed earlier this month. The US Trade representative stated that both sides made progress and are committed to the agreement. The two parties also discussed intellectual property rights and other issues that have caused problems in negotiations over a phase-two deal. Negotiations were expected to take place on 15th August, however, they were postponed by President Donald Trump with no official reason other than providing Beijing with more time to make additional purchases of American products in order to live up to its side of the bargain. The timing could not be more opportune, as President Trump heads into the week of the Republican National Convention, where striking a deal with China on long-standing issues would make good headlines for the President. The additional pressure on Chinese companies comes at a time when President Trump wants to show he is tougher on China than rival Joe Biden.

The S&P 500 gained 2.92% over the last week, driven by technology and e-commerce shares, amid news of further progress on Coronavirus vaccine trials and expectations for the Federal Reserve to indicate it will maintain an easy monetary policy.

Please note that investments and income arising from them can fall as well as rise in value. Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
Mixed Week for Global Markets
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