An Update on COVID-19 and Market Commentary from Lycetts Financial Services

In theory Covid 19 is something you can vaccinate against, we just need the vaccine, distribute it to billions of people worldwide and hope that it lasts for while – easy really! There are some encouraging test results coming from research from Oxford University but we are still going to have to live with this virus for some time yet and adapt our way of life to match. China was first to get it, took strict measures to control it and is now recovering fast. The West were slower to react and have found lock down more difficult to enforce so are now more vulnerable but the Global Economy simply cannot afford to go back in to full lock down in the event of a second wave or elongation of the first wave.

In the meantime markets have achieved a remarkable recovery from the depths of despair following the initial outbreak. Over a twelve month timescale markets are pretty much level pegging but it hasn’t been a smooth ride along the way. This recovery has largely been down to the response from Central Banks and Governments in providing extraordinary levels of support to keep the wheels turning and be prepared for when markets begin to open up again. Employees have been kept on the books through furloughing and in the USA through unemployment benefits paid for by the Government but as this is phased out there may be a significant rise in unemployment numbers. Markets will remain susceptible to profit taking and also a second wave or the like.

The USA is increasingly dominated by the Presidential Election and polls indicate that Donald Trump is struggling to get enough public support to secure a second term, but the polls were wrong last time. Despite this the USA has been the best performing market largely due to the number of technology stocks, with Amazon and Alphabet combined now valued at more than the whole of the UK stockmarket ….

Brexit was the dominant issue last year but is now regarded by many as a storm in a tea cup. There will no doubt be a clash at the end of the summer but markets are currently pricing in no deal and reliance on WTO agreements. Any deal would be seen as an improvement and on a purchasing power parity basis Sterling should appreciate.

There is therefore cautious optimism but consumers do need to start consuming again and not allow the thrift of recent months to become too much of a habit. Demand is vital to reinvigorate the economy.

When news flow is positive, financial conditions supportive and investors negative this usually points to a good time to invest. All of that is true at the moment but it is interesting to note that both gold and silver have had a very good run and are expected to show further gains. In terms of interest rates ten year German Bond yields are at minus 0.5% whilst equivalent US bond yields are plus 0.6% indicating that interest rates are likely to stay very low for some time yet but that service activity is seemingly stronger in Europe than in the USA.

As always, if you would like to speak to us about any of the above or would like further help or advice, then please do not hesitate to get in contact with your usual Lycetts contact.