It has been an exceptionally busy period since our last bi weekly communication with markets proving volatile in response to the growing second wave of UK and European Covid-19 cases, resulting in widespread national lockdowns, whilst being buoyed by the prospect of a favourable result (in economic policy terms) in US elections.
Rest assured, Tideway have held an Investment committee earlier today, as part of our standard investment process, in conjunction with our Macro Research partner TS Lombard, reviewing these events both at a high level, making sure we have access to the latest available information and opinions, and most importantly how these events pertain to your portfolios. Although we are happy with the overall construction of your portfolios, we will be looking to make a few tweaks in the coming weeks when we feel the time is right to do so. Once these changes have been executed, we will communicate to you the precise nature of these alterations as well as the underlying rationale for them.
At this time however we will briefly summarise the main events driving markets as mentioned above; the implication of US election results at the time of writing, European policy reaction to the second wave of Covid-19 and in addition, a brief acknowledgement of latest UK Monetary Policy Committee actions.
Firstly, the US election; as Oliver Brennan of TS Lombard notes “the election winner so far is political uncertainty”. Although the next president of the United States has yet to be determined, with the counting of postal votes in states such as Nevada and Pennsylvania expected to continue well into the weekend, there is still much to glean from the information that we have thus far. With a split Senate, it is increasingly unlikely that Democrat tax hikes come to fruition with tighter financial regulation also seemingly off the cards, all pointing to greater economic continuity with the incumbent administration, which markets have responded strongly too. Although this is most definitely good news in the short term, things become less clear from next year with the overall level future fiscal packages now likely to be weaker which is a cause for concern and something to be monitored.
On the European front, the effects of the global pandemic continue to be felt with the European nations struggling to slow the spread of the virus. As a result, the UK’s short-lived tiered lockdown policy has been temporarily abandoned and replaced with a national lockdown, as seen earlier this year, following on from the actions of both the French and German governments. This is undoubtedly bad news for the UK and European economies, though due to the scheduled lockdown period only lasting a month (though an extension is a real possibility if the decision makers do not see evidence of a reduction in the ‘R’ rate below 1), there seems to be a consensus that there should be less overall economic harm than seen in the second quarter. Furthermore, certain parts of the economy are to remain open which were closed for the first lockdown, housebuilding for example, with schools and universities also remaining open, theoretically meaning less disruption to the population of working age.
As a result of the lockdown measures, the UK has extended its Furlough scheme until March 21st with 80% of wages to be paid to employees. Mortgage holidays have also been extended for another six months. The UK’s Monetary Policy Committee also met this week with continued Quantitative Easing (QE) the order of the day with the possibility of negative rates in 2021 now increased but still a “tail” scenario according to TS Lombard.
As ever we will continue to be keep abreast of all the latest developments which we can update you on in future communications. Should you have any queries, please do not hesitate to get in touch with your adviser.
Have a good weekend,
The Tideway Team
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