15 June - update from our investment partner

  • 15th June 2020

What has happened

The market is now fixated on the second wave risk which up until the start of last week was slowly disappearing from investors’ minds. News over the weekend from Beijing suggests that this issue is not just isolated to the US and this has dampened risk appetite this morning.

Brexit summit begins

The increase in new cases has certainly taken the spotlight but the UK Prime Minister is due to meet today with the Presidents of the EC, European Council and Parliament. Both sides have agreed to an intensified timetable for talks which focus on the five major outstanding issues but investors will be watching closely to see if these high level negotiations catalyse any shifting of the UK or EU’s position. Sterling remains under pressure suggesting that little good news is currently in the price, so expectations are low that we see a breakthrough with 6 months still left on the negotiating clock.

Market tremors as signs of a second wave grow

Beijing saw the largest increase in new cases since April this weekend and has imposed a localised lockdown around the market suspected as the source. US case growth also picked up again with Arizona and Florida, in particular, struggling to contain the pace of growth. The response by Beijing has been swift and China has reimposed contact tracing measures in the country’s restaurants and bars after that was removed recently. Whilst China’s new case numbers are in absolute terms quite contained this additional risk has simply rattled markets which are concerned about the greater threat within the United States. At a Federal level in the US the message is very much that the economic impact of lockdown outweighs the health risk. This is why markets are anxious that US case growth may continue to rise until a U-turn decision has to be made at a state level to start restricting movement again.

What does Brooks Macdonald think

The weekend’s news flow suggests that countries may struggle with the trade-offs of easing lockdowns and the elastic impact of COVID-19 will pull them back as they try to restart their economies. This of course makes the search for a vaccine even more important and should we continue to see pockets of second wave infections, fiscal and monetary policy will need to be forthcoming to help plug the inevitable hole in economic demand.

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