31st August 2020

Good morning,
Markets moved higher once again last week, with ‘Big Tech’ continuing to grab the headlines. However, it’s worth noting the potential for online growth from more traditional players. For example, BofA ML project that both Walmart and Target will grow their online business this year by 65% and 97% respectively. It points to the potential for wider industry to capitalise on changing consumer trends.

Another evolving trend is the rising number of Americans contemplating moving house. Some of this must be a response to the COVID Pandemic, and the changing needs of full time workers. However, it is also worth considering the fall in long-term interest rates in the U.S., which directly leads to lower mortgage rates and therefore increases the attractiveness of moving.

The Federal Reserve’s move to an extended era of low interest rates offers an opportunity for emerging economy central banks to do something relatively similar, particularly those whose currencies are linked to the fortunes of the US Dollar. This could also have implications in valuing risk assets in general – a lower projected risk free (or discount) rate increases the value of future cash flows, and therefore justifies a higher price today. Plenty of subjective inputs into any such model but one to keep an eye on.

Weekly Investment News
U.S. markets hit another record high last week, and remain on course for their best summer since the 1930s. Markets were buoyed by positive treatment developments, including news from Abbot, who announced plans for a 15 minute test available at just $5. Overall market volumes were weak as many market participants enjoyed the last of the summer holidays. Growth stocks (namely those in the Tech and Communications sectors) outperformed as ‘Value’ stocks lagged once again.

The biggest policy news of the week was Fed Chair Powell’s speech at the Jackson Hole Symposium on Thursday. In a somewhat forecast announcement Powell stated that the monetary policy framework of the Fed would transition to a concept of allowing average inflation to be ‘around its 2% target’ and that it would also allow ‘above-maximum’ employment’. The general consensus is that this will lead to interest rates being lower for longer. Bond yields rose as a result of the potential implications of the policy shift.

Economic data last week was mixed, as the U.S. housing market continued to show resilience whilst consumer confidence fell back in August, and is now at its lowest level since 2014. Eurozone stocks were helped by further stimulus announcements from both Germany and France and by rising business sentiment in Germany, the Eurozone’s largest economy. In Japan, Prime Minister Abe, who has been in office since late 2012, resigned citing health concerns. Japanese assets showed some volatility on the initial news but the general market sentiment is that any potential successor is unlikely to deviate significantly from current economic policies.

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