Mar 31 2020

As we continue to feel the impact of coronavirus right across the UK, I hope that you, your family and your friends are keeping safe and well.

There is no doubt that these are truly extraordinary times. While the majority of the Fairstone team is working from home, we are still working tirelessly on your behalf to support you and your interests.

Our primary focus is you and your financial objectives and as always, it is important that you stay focussed on your longer-term goals.       

Last week’s falls in new European virus infections unfortunately proved to be a false dawn, with Italy, Spain, Germany and France all seeing higher numbers through the week, sadly coupled with higher fatality figures, too.

Whilst case numbers remain high in absolute terms, they look again in recent days to have stabilised somewhat, meaning importantly the rate of growth has slowed in all the countries above. As Italy moves into its fourth week of complete lockdown, we again look to their data for further signs of slowdown in new infection and mortality rates.

In the UK, the Chancellor announced a new package of support for self-employed workers who have lost work as a result of coronavirus, with the government promising to pay a grant of up to £2,500 a month – similar to the levels seen for employed workers. Unfortunately, due to the additional complexity of this scheme, it will only be introduced from June (though backdated), and will be unable to help everyone – for example those who have only just become self-employed with income evidence in the form of a tax return.

The US finally managed to pass its enormous $2 trillion stimulus bill, that will reach into many aspects of Americans’ lives and businesses to stave off at least some of the economic damage being wrought by the pandemic. The bill contains provisions for $500 billion in loans and other assistance to big companies, cities and states (which are able to issue debt), and $350 billion in aid to small businesses. Individuals will be eligible for payments up to $1,200 with an extra $500 for children; rated by income levels.

On top of this, the US Federal Reserve made a surprise announcement that it will buy unlimited amounts of Treasury bonds and mortgage-backed securities to keep borrowing costs as rock-bottom levels; essentially ‘unlimited’ quantitative easing.

The Fed has also set up programs that will support the corporate bond market, both in the primary (directly providing new bond and loan issuance to companies) and secondary (purchasing outstanding investment grade corporate bonds and ETFs) markets. This move itself and the numbers involved are truly extraordinary, with the Fed’s balance sheet rising by more than $1 trillion in just the year to date, per the chart below:

During the week both equity and bond markets finally responded in positive fashion, with the former rallying albeit from depressed levels. The Pound also rose strongly against all major currencies, resulting in UK indices performing well; particularly the FTSE 250 which rose by 8.66%.

In local currency terms, US equities had their best week since the 1930s, with the Dow Jones index rising by nearly 13% - this comes after last week being the worst since Lehman Brothers’ bankruptcy in 2008. Similarly, investment grade corporate bonds rose sharply, with the largest such ETF having its best week ever.

Precious metals also performed exceptionally well, with gold and silver rising in price by 11.2% and 17.4% respectively (in US Dollar terms). Whilst this asset class has struggled along with all others this year, we believe its natural hedging qualities against inflation, ‘disaster’ and policy missteps could prove invaluable over the medium term.

Whilst it remains to be seen whether government and central bank packages mean a market bottom has formed, there is certainly no mistaking their ambition and unprecedented breadth; policies that until recently would have been dismissed as fantastical or outright dangerous are now entirely mainstream and even expected of authorities.

We would not rule out additional support should it be needed, both conventional or unconventional, should markets or the real economy require it, though we hope they do not. As before, we think genuine optimism (or at least a trough in pessimism) will emerge when new case numbers are clearly falling in Europe and then the US. The former may start to see this soon, though the latter may still be some way behind.

The value of investments may fluctuate in price or value and you may get back less than the amount originally invested. Past performance is not a guide to the future. The views expressed in this publication represent those of the author and do not constitute financial advice.

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For further information, please contact:

Andrea Barker andrea.barker@fairstone.co.uk / Tel. +44 (0) 191 519 6243