Weekly Market Insight

Latest Economic & Market Update 9th July 2020

09th July 2020

Good afternoon, it is 9th July 2020 and here is your economic and market update from BlackBee. 

Today’s focus:

  • Shortage of Nursing Homes expected to become more acute.
  • Gold climbs above $1,800.
  • After 10 months, the FED has withdrawn from the repo market.

CBRE has released their Q2 2020 Nursing Home Outlook. The report shows that instead of gaining vital nursing home bed stock to satisfy our growing population, the sector could potentially see the loss of 7,870 beds or thereabouts (more than 30% of the national stock) as a result of a combined introduction of new standards as well as infection control measures. On a positive note, and despite Covid-19, CBRE saw increased appetite from developers and operators to invest in the nursing home sector, encouraged by Ireland’s unique demographics and the potential to generate defensive income. There is still strong demand from existing owners to consolidate their position in the Irish market. However, a shortage of supply is likely to prove a barrier to investment in this particular sector. With increased regulation and huge variance in Fair Deal rates payable across the country, the sector is likely to see the shortage of nursing home beds become more acute over the coming years and this should be of major concern to any new Government. The BlackBee Healthcare Fund strategy is to position its nursing home operating company, Aperee, as a leading consolidator in the sector through the acquisition of superior standard homes and development of new best-in-class stock, while providing the highest quality of care for its residents. This strategy reflects the need for quality nursing home beds to deal with the supply-demand imbalance while ensuring the quality of care for residents is at the centre of its mission.
On Wednesday, the price of Gold rose above $1,800 an ounce for the first time since 2011, closing at $1,808.89 an ounce. Gold is now up 19.2% since the start of the year as investors move to the safe haven during times of turmoil. US stocks climbed higher with the Nasdaq outperforming, closing 1.44% higher for the day. European stocks closed lower as the Euro Stoxx 600 ended the session -0.67% lower.  
After 10 months, the FED has withdrawn from the Repo market signalling the market has returned to normality. In the Repo market, banks lend to other institutions with government securities as collateral. It is usually on an overnight basis, to meet short term capital needs and is vital to the financial system. The difference in the price at which the bank buys the securities and sells them back is the interest rate. Following the financial crisis in 2008, the FED bought trillions of dollars of US government debt to support the economy. It began unwinding these purchases in 2017 leaving the banks to step in and replace purchases from the FED. The result was that as banks were using their cash to buy US treasuries, less funding was available for Repo markets. When Trump reduced corporate taxes in 2018, this increased the US governments budget deficit leading to the issuance of new government debt. Again the banks were purchasing this, reducing funding available for repo markets. Four rate hikes in 2018 also resulted in less foreign investors buying US treasuries. Congress raised the ceiling on the level of US national debt in 2019 and more US treasuries were issued. As a result of demand being higher than supply, September 2019 saw the repo rate spike to nearly 10% as the market became very volatile. Instead of lending more at a higher rate, banks argued that post financial regulations kept them from lending because they had to keep a certain level of cash on hand. In response, to control the volatile interest rates, the FED lent billions to the repo market and began buying treasuries again. It also ramped up lending during the coronavirus crisis. Now the FED has controlled the interest rates, the volume of the FEDs operations in the repo market fell to 0 this week.

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

Global Market Update
(as at close of markets 08/07/2020)