Quarterly Investment Update

2020 continues to surprise. A pandemic, the shutdown of the global economy, the deepest recession since the 1930s, a global equity market collapse and now, multi-year highs for global equity markets. Despite the continued advance during the quarter, September has been a turbulent month for stocks, with declines in technology shares pulling down major indices. Even so, such stocks have enjoyed an extraordinary run-up this year, thanks to profits that have remained resilient during the coronavirus pandemic. Despite the ambulant liquidity and the unprecedented monetary and fiscal support by key governments and policymakers, how Covid-19 will develop during winter months, the upcoming US presidential elections in November, the trade conflict between US and China and the ongoing Brexit negotiations will continue to concern investors and keep volatility at elevated levels.

The US Federal Reserve approved a major shift in how it sets interest rates, in relation to its mandate to control inflation. While the 2% inflation target didn’t change, the Central Bank said it would seek periods of above-target inflation if inflation runs below 2% following economic downturns, to prevent expectations of future prices from sliding lower. On the economic front, the labour market improved during the quarter, with the unemployment rate down to 8.4%, a significant improvement from the 15% back in April. However, persistently elevated jobless claims in September point to continued cooling in the jobs market and a slower recovery going forward. Lastly, U.S. service-sector and manufacturing companies reported solid growth in September, a positive signal for overall economic growth in the third quarter.

As a second wave of coronavirus infections gathers momentum across Europe, the Continent’s governments are determined to avoid large-scale lockdowns and instead seek less disruptive ways to live with the new disease. Eurozone services activity declined in September according to a widely watched business sentiment survey, fuelling economists’ concerns that a resurgence in coronavirus cases threatens the bloc’s economic recovery. Alternative economic data such as travel volumes, visits to entertainment venues and restaurant bookings indicate that the resurgence in infections is choking off earlier signs of revival in the most affected industries.

British Prime Minister Boris Johnson announced a series of new coronavirus restrictions for the UK, including earlier pub-closing times, as his government tries to quell a second wave of infections while avoiding another economically damaging nationwide lockdown. Although the economy was growing and recovering steadily during July and August, UK entered choppy waters in September, with the latest indicators suggesting that a summer surge in activity was ending.

Data coming out for Sweden indicates that the crisis is less severe than feared. Households are holding up well, and at the same time global demand is rising in step with the reopening of economies after the spring lockdowns. Thus, the scene is set for a broad and healthy recovery relatively earlier compared to other countries. The Riksbank, which kept rates unchanged in September, said that the Swedish Economy seems to have left the crisis and has started to recover slightly faster than expected, but noted that the way back is long and uncertain.

As much of the world struggles to contain the coronavirus, Chinas recovery is gaining momentum, positioning it to further close its gap with the U.S. economy. Alternative data shows that during the quarter restaurants, gyms and airports were quite busy, while growth forecasts are revised upwards. Moreover, the tech, trade and geopolitical conflict with the US gathers pace, with Washington saying that China is trying to influence the upcoming elections, claims that are consistently rejected by China .