Market Update – 1st October 2020.

After last week’s declines in global equity markets due to indiscriminate selling, it is no surprise to us that equity markets have started to bounce back slightly this week, despite Tuesday’s US Presidential debate between Donald Trump and Joe Biden.

Unfortunately, the debate was a complete waste of time as there was very little discussion on their potential policies as they both instead focused on personal insults and attacks – and as a result, the debate probably did very little to change the public’s likely voting on election day.

While it is an open question what a victory for either Donald Trump or Joe Biden would mean for equity markets in the long-term, our greatest concern in the short-term is the risk of a disputed election outcome.

Although electoral uncertainty will mean that equity market volatility will remain elevated in the short-term, equity markets are underpinned by the accommodative monetary policies from major central banks (Fed, BoE, ECB and BoJ) – in fact, we continue to believe that interest rates will remain low for many, many years.

Additionally, any fresh stimulus (either fiscal or monetary) and a coronavirus vaccine will provide the ingredients for another step-up in equity markets.

Interestingly, in the UK while Sir Dave Ramsden, the BoE’s Deputy Governor for Markets and Banking, commented that UK interest rates had most likely already reached their low at 0.1%, we still believe that we are heading towards negative interest rates due to the economic impact from the current resurgence in coronavirus cases, increasing unemployment as we approach the end of the government’s Job Retention (furlough) scheme and Brexit uncertainty.

Investment Management