Please find below our Investment Market Update as at 19th June 2020.
Blue Sky Investment Market Update
My name is bond
Some 13 years ago most of us hadn’t heard of quantitative easing (QE), now its ingrained in our language. It has been since 2008. The stimulus has kept economies and financial institutions afloat, but the extraordinary amounts delivered during the financial crisis is relatively small compared with the avalanche of money now being committed to support the global economy.
The Bank of England has increased its bond buying program to the tune of £100bn.This however is just another incremental injection of money from across the globe. Now over a dozen central banks in the developing world are buying up bonds.
QE can disappoint
Although QE was expected from the Bank of England, there was no fanfare across the markets as the extent of the stimulus (ONLY £100bn) was at the lower end of expectations.
Counterbalancing this, was the Bank’s decision to reduce its purchase of government bond debt and no longer ‘hoover up’ all future issuances.
According to the Office of National Statistics, the Consumer Prices Index (CPI) fell in May to 0.7%, down from 0.9% in April 2020.
The biggest contributor to this falling figure was recreation, leisure and cultural events not happening. Adding to the impact, was the fall in the oil price and the lack of transportation.
The Bank of England have stated that they will not continue to print money and buy government debt if inflation begins to recover towards their 2% target.
Equity markets bounce
Equities have recovered much of the damage from last week on hope that stimulus packages are enough to accelerate growth in economies, whilst underpinning asset prices.
The markets were expecting volatility on what is deemed in some quarters, as ‘witching’ day. This is when a lot of option and future contracts expire. This caused havoc a couple of months ago in the oil market, albeit there were different dynamics in play, specific to oil.
So far, all appears calm as good news reigns. The FTSE 100 is up today +1.43% and crude oil has risen to $40 a barrel. A long way off negative prices.
Have a lovely weekend
Gary and the Investment Team
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.