Monthly Review - August 2020
- 07 September 2020
- 5 mins reading time
Investors moved money into higher-risk rated and higher potential return assets, such as equity (company shares), and out of lower-risk rated ones, such as government bonds, during August. This was driven by hopes for a Covid-19 vaccine, signs of continued economic recovery and ongoing financial support from governments and central banks (such as the Bank of England). Demand for and prices of equities were broadly higher while those for government bonds were lower.
Major technology stocks such as Google, Facebook and Amazon, have flourished during the lockdown as people have turned to online services.
This trend propelled US stocks, as measured by the S&P 500, to new record highs during August. Other companies have also started to recover as the Federal Reserve (US equivalent of the Bank of England) confirmed its readiness to offer more financial support through low interest rates and though its bond-buying programme which, effectively, injects “new” cash into the financial system.
Meanwhile, macro-economic indicators provided mixed signals. The number of Americans applying for unemployment benefits fell below one million for the first time since the pandemic began, but retail sales disappointed and consumer confidence remained subdued.
Equities across Europe also rose over the month. In the UK, economic data appeared to show an acceleration in growth over the summer as lockdown restrictions were further eased. In Continental Europe, top-performing sectors included those whose performance most closely reflects the economic outlook. These included the industrial (machinery and equipment) and consumer discretionary (holidays and handbags) sectors.
In China, equity prices were lifted by falling rates of virus infections and by better-than-expected company results for the three months to the end of June.
Turning to fixed income, the movement of money out of lower-risk rated investments sent the prices of government bonds down. By contrast, the demand for and prices of bonds issued by companies and the broader universe of bonds issued in emerging markets (such as Asia) rose; these are more attractive at the moment as they offer higher yields but still, in some cases, a reasonably low level of risk.
Oil and industrial metals (such as nickel and zinc) rose in price as increasing global economic activity boosted demand. In precious metals, silver continued to rise sharply while the demand for and price of gold fell back a little as investors digested its recent rises.
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