Weekly Market Insight

Latest Economic & Market Update 31st August 2020

31st August 2020

Good afternoon, it is August 31st 2020 and here is your economic and market update from BlackBee. 

Today’s focus:

  • Worries about the Fed’s new approach felt in the bond market and US dollar.
  • Irish Pension Schemes investing more in Real Assets.
  • ECB report increase in deposits during July.  

Following the announcement of the Fed’s new approach last week, the long end of the bond market suffered a sell-off. This looked like it would continue on Friday as the yield on the 30-year Treasury jumped to 1.5738% before retreating later in the day to end up relatively unchanged at 1.5010%. The movement in the long end of the Treasury market is due to investor concern over the Fed’s take on inflation. Investors are worried that if the Fed will let inflation run above the 2% target, considering yields are already at unprecedented low levels, and that returns will be eroded into. The dollar also continued its decline following the announcement of the new approach. The Bloomberg Dollar Spot Index fell -0.68% on Friday and is down -10.31% since mid-March. US stocks climbed on Friday with the S&P500 up 0.67%. In Europe, the Stoxx Europe 600 fell -0.64%.

Mercer has released a new report which shows that to diversify portfolios and find new sources of returns, Irish pension schemes have reduced equity holdings in their portfolio by almost a third in the last three years and have invested into fixed income and real assets such as property and infrastructure. The report shows that equity holdings in Irish Defined Benefit schemes has fallen to 27% this year, in comparison to 39% in 2017. Fixed income investments have risen to 50%, up from 48% in 2017 but most notably was the increase in investment in real assets which doubled in the last three years, up to 22% from 11%. Mercer said that schemes are building more robust and diversified portfolios which they expect to continue.

According to data released from the European Central Bank, company and household deposits in the eurozone increased by €184 billion in July. Since the beginning of the year, bank deposits have increased by 10.3% with deposits exceeding €12 trillion for the first time. Household deposits grew by 7.4% on an annual rate while business deposits grew by 20.4%. The continued increase in savings will raise concerns for governments and the ECB as they try to stimulate economic recovery. There has been a pickup in economic activity compared to lockdown levels but if this can be sustained and when it will reach pre-pandemic levels is another issue. Governments and the ECB have injected money into the financial system in an effort to help the recovery but if this extra money supply is being used to save, it will slow down economic recovery.

Best & Worst Performers of Large Cap US Stocks on Friday
Click the image to enlarge

Global Market Update
(as at close of markets 28/08/2020)