18 May - update from our investment partner
- 18th May 2020
What has happened
There were no meaningful escalations in the two big risks for markets this weekend: US/China tensions and a second wave of infections. In this void, markets have begun the week strongly after a lacklustre last week where equities sold off amidst floundering risk appetite.
Comments from the Federal Reserve
Over the weekend comments from Fed Chair Powell on CBS cautioned of the timing and strength of the recovery but recommended people should never bet against the American economy. Powell also speaks before the Senate Banking Committee tomorrow so expect to hear a note of caution and signs of a continued preference to stay away from negative interest rates. Jerome Powell has been keen to point out that the Federal Reserve still have significant firepower available to help support the US economy including emergency lending programmes, asset purchase programmes and forward guidance. As rumours mount of another US Congress fiscal support package, the Federal Reserve are ensuring they have the scope to buy the issuance needed to fund another pick up in government spending.
National People’s Congress
The major event of this week is likely to be the National People’s Congress in China which opens on Friday. Despite this occurring as US/China tensions begin to heat up we expect the congress to steer away from international politics and focus on the domestic economy. There are two areas of particular focus for the market, additional stimulus and GDP targeting. The market expects to see some additional fiscal spending with a consumer tilt, targeting household demand and encouraging consumption as the economic recovery continues in Asia. The congress is also used to set expectations domestically and to the market around GDP growth, given the uncertainties around coronavirus the Chinese government may opt for a broad description of GDP rather than guiding towards a figure.
What does Brooks Macdonald think
Today’s market rally is not based on any particularly new news but more an absence of bad news. Last week the two main risks dominated sentiment and didn’t give the market any breathing room to assess whether equities are good value on a more strategic basis. Our view remains that equities, particularly compared to alternative asset classes out there, are attractive however we are conscious that neither of the main risks have gone away so the risk of further bouts of volatility remain.
Any news or resources within this section should not be relied upon with regards to figures or data referred to as legislative and policy changes may have occurred.