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3rd April 2020

Investment Update

Recent Developments

The past two weeks have seen a huge effort from central banks from around the World to lessen the long-term economic impact of the pandemic and reduce the significant pressures on financial markets. This has been through the reduction of interest rates, which now stand at 0.10% in the UK, and the restarting of Quantitative Easing (QE) programmes amongst many other measures. This monetary easing has the effect of pumping vast sums of cash into the financial system in an effort to keep them functioning as they should. The early indications are that these are having the desired effect.

However, monetary policy can do nothing about the halt in demand from business and consumers as they effectively shut down due to the social distancing measures now in place around the World. To try and ensure that demand is deferred, rather than lost entirely, and to help economies restart quickly once the pandemic subsides, Governments have embarked on massive fiscal easing measures designed to put money in the pockets of businesses and individuals. Here in the UK, the Government has announced roughly £330 billion of measures to help companies and households stay afloat. In the US the number is a staggering $2 trillion, or nearly 10% of GDP.

Market Reaction

The markets have taken these measures very positively and have rallied strongly, with the S&P 500 up some 21% over the past three days, despite jobless claims in the US coming in at 3,000,000 yesterday. To put this into perspective, the previous record was 862,000 in 1982.

And therein lies the rub. We still have only the earliest indications of how badly the global economy will be affected by the pandemic. A recession is now inevitable, and the question is now whether politicians have done enough to stave off a depression. We believe that they have and that we will see a recovery in the second half of the year, provided the pandemic begins to subside in the next couple of months.

A short recovery after such a violent sell-off in equities in not, historically, unusual. However, the Committee, would caution against over-optimism at this stage. Financial markets could come under further pressure as the scale of economic damage becomes more apparent and so we would not be surprised to see Global indices retest their recent lows.

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Important Information

Past performance is not a guide to future performance and may not be repeated.  Investment involves risk. The value of investments and the income from them may go down as well as up and investors may not get back any of the amount originally invested. Because of this, an investor is not certain to make a profit on an investment and may lose money. Exchange rate changes may cause the value of overseas investments to rise or fall.

This article was issued by Capital Professional Limited, trading as Ascot Lloyd, Ground Floor Reading Bridge House, George Street, Reading, England, RG1 8LS.  Capital Professional Limited is registered in England and Wales (number 07584487) and is authorised and regulated by the Financial Conduct Authority (FRN: 578614).  This communication is for information purposes only. Nothing in this communication constitutes financial, professional or investment advice or a personal recommendation. This communication should not be construed as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdiction. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the document. Any opinions expressed in this document are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or companies within the same group as Ascot Lloyd as a result of using different assumptions and criteria.