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Ok. Got itThe world is on tenterhooks once again as Coronavirus cases increase across Europe, the US and the UK. Read more in our latest market review.
The world is on tenterhooks once again as Coronavirus cases increase across Europe, the US and the UK. Although localised lockdowns in towns and regions remain the primary response, there has been a reintroduction of broader measures in countries like the UK to limit the movement and interaction of people. Many argue that the ability to test is greater during this resurgence and hence the increases reflect better data. For others it merely highlights the fact that the world may need to learn to live with Covid-19 until widespread immunisation has been achieved and potentially beyond.
Markets were less sanguine about such uncertainty and remained vulnerable to news such as a temporary halt in the phase three vaccine trials of AstraZeneca and Oxford University, continued tensions between the US and China on a multitude of topics and the lack of progress on further fiscal stimulus in the US (CARES 2). Over and above that, valuations of technology companies had arguably run ahead of a still tentative economic backdrop. Risk-off sentiment reverberated across key markets in a meaningful way for the first time in months.
The S&P 500 declined -3,8% over the month, with the selloff in technology stocks driving a decline in the Nasdaq of -5,7%. Despite the lapse in momentum, the S&P 500 delivered +8,9% over the quarter, while technology-heavy index Nasdaq returned an astounding 48,7% over the last 12 months. Despite the end of summer volatility, most of the major equity markets delivered positive returns over the third quarter, with emerging markets beating many developed market peers, compliments of a weaker US dollar.
Brexit negotiations came to a head when the UK put forward the Internal Market Bill, which removes the requirement for a new customs arrangement with Northern Ireland and essentially overrides a crucial part of the previously agreed withdrawal. The draft bill has been criticised for undermining international law and has been opposed by Scottish and Welsh leaders.
The UK may have been emboldened by the other big announcement in September: its first major post-Brexit trade deal, with Japan, which would increase trade by an estimated £15 billion a year. Nevertheless, the UK ignored the end-of-September deadline from the European Union to remove the controversial changes. Brussels has now launched legal action, arguing that the UK draft bill is ‘a breach of the obligation of good faith laid down in the withdrawal agreement’. Prime Minister Boris Johnson has stated that the UK would walk away from trade negotiations come 15 October, casting further doubt over a ratified deal by end of the year.
The US election season kicked off with a presidential debate that devolved into a chaotic exchange of insults, interruptions and very few hard facts. With the passing of Justice Ruth Bader Ginsburg, one of the topics debated her replacement on the Supreme Court. President Trump has nominated Amy Coney Barrett for the position, which, if approved, would leave the US with a largely conservative Supreme Court. But given that this is an election year, many argue that the appointment should be left to the newly elected US president. In fact, Republicans blocked the confirmation of a judge on these grounds in 2016, just before President Trump took office. Others have suggested expanding the number of seats. The Supreme Court is often the final arbiter of contentious laws and disputes, and judges serve a lifetime appointment – much longer than a presidential term. With so much at stake and a noisy election in the pipeline, US citizens can only hope for leaders that will act in good faith.