Donald Trump’s poll numbers were looking increasingly unhealthy at the time of writing, but at least the cocktail of drugs administered to the coronavirus-stricken President appears to have worked. This is encouraging news in the fight against the virus and a considerable achievement for Regeneron, whose founders increased their stake in the company after a French pharma group pulled back earlier this year. At this point, markets are increasingly taking on board the probability of a Biden victory – an eventuality that would at least provide some clarity and open the way for further fiscal stimulus. Nonetheless, we still believe there is a risk that the election is contested and/or inconclusive—and whatever the talk of a ‘Blue Wave’, it is uncertain whether the
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Donald Trump’s poll numbers were looking increasingly unhealthy at the time of writing, but at least the cocktail of drugs administered to the coronavirus-stricken President appears to have worked. This is encouraging news in the fight against the virus and a considerable achievement for Regeneron, whose founders increased their stake in the company after a French pharma group pulled back earlier this year. At this point, markets are increasingly taking on board the probability of a Biden victory – an eventuality that would at least provide some clarity and open the way for further fiscal stimulus. Nonetheless, we still believe there is a risk that the election is contested and/or inconclusive—and whatever the talk of a ‘Blue Wave’, it is uncertain whether the Democrats will gain control of the Senate. If they do, the size of the fiscal stimulus pushed through could be substantial, which would be good news for sectors such as infrastructure and materials. We might also see a sector rotation away from tech, especially as the tech giants could come under increasing antitrust pressure from a Democrat administration, while rising bond yields (with extra stimulus raising inflation expectations) would mean the tech sector’s future cash streams look less attractive.
The Q3 earnings season is upon us. We expect the year-on-year decline to slow from Q2, more so in the US than in Europe. But companies are cushioning earnings and margins by cutting costs hard, which means jobs losses and a tailing-off in the job recovery. This makes further fiscal stimulus all the more necessary. Of the 69 of S&P 500 companies that have issued guidance so far (versus 100 to 110 usually), two-thirds have sent positive guidance, a much higher proportion than is normal. We believe there is a good chance we will see positive surprises in Q3 but we need to see more companies setting out their investment plans.
At the end of Golden Week in China, signs continue to emerge that the country is well set on the path to recovery, with consumer sales rising by 4% year-on-year during the Golden Week holiday. With the Chinese communist party set to roll out its five-year plan for 2021-2025, we like Chinese assets, including the renminbi, whose value is being buoyed by this positive news flow, by attractive local bond rates and by the prospect of a Biden presidency.
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House View, September 2020
A surge in new covid-19 cases in a number of countries has interrupted progress towards normality, yet the effects of the virus are becoming more manageable and positive world H2 growth is achievable.
Horizon 2020: long-term investing in a world marked by pandemic
The sudden, violent recession triggered by this year’s covid-19 outbreak provides further impetus to pre-existing economic and market dynamics.
Weekly View – The Last Samurai
The CIO office’s view of the week ahead.We are in the midst of a decisive elections season, from the surprise, poll-defying victory of the conservative coalition in Australia and Indian general elections last weekend to the European parliament elections in the week ahead.
Weekly View – Election nerves increase
The sell-off in stocks last week showed a certain nervousness about the sharp run-up in tech stocks and the role of big option bets. Indeed, prices in some instances had risen too fast. But this was a technical correction. With the US tech titans generating free cash flow, we do not believe we are facing a repeat of the bursting of the dot-com bubble in 2000.
Weekly View – One country, two systems at risk
Last week, German chancellor Merkel delivered a surprise about-face when she and French president Macron announced a proposal for a EUR 500bn recovery fund in the wake of the coronavirus crisis. The unprecedented plan involves the distribution of grants, rather than loans, to member states in economic need.
Weekly view – The summer grind
All kinds of reasons can be advanced for the tit-for-tat closure of the Chinese consulate in Houston and its US equivalent in Chengdu. These range from a dispute over quarantine requirements for US diplomats returning to China to an attempt by the Trump Administration to distract from troubling virus news and a real threat to American intellectual property and privacy.
House View, October 2020
Rising coronavirus cases accompanied by flagging recovery momentum and a fractious run-up to the US elections make prospects for equities highly reliant on 3Q results and further policy stimulus. Against this background we have downgraded our stance on euro area equities from neutral to underweight, following a similar downgrade for US equities in August.
Weekly View – No breakfast at Tiffany’s
The impact of political tensions on business is ever more apparent: LVMH of France will not, after all, proceed with the purchase of Tiffany of the US. If, as seems likely, the hand of the French government was involved, this is solid evidence that political sensitivities are increasingly influencing cross-border deals – something that is likely to remain the case just as M&A in general has been declining.
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