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At a time when countries need to pull together, East-West relations have worsened and it’s not just Trump getting caught with a frosty East wind. It’s fair to say that relations between the UK and Russia are not great at the moment. Following the Salisbury poisonings incident and alleged hacking of UK scientists developing a Covid-19 vaccine, Russia has now been accused of interfering in British elections and Brexit. An inquiry into the election issue has said that the UK government ‘badly underestimated’ the threat posed by Russia.
For us, even more alarming than the above, is news that the US and UK have accused Russia of recently testing anti-satellite weaponry in space. Russia’s defence ministry denied this, but the head of the UK’s space directorate, Air Vice-Marshall Harvey Smith said ‘we are concerned by the manner in which Russia tested one of its satellites by launching a projectile with the characteristics of a weapon’. The US State Department also said it had observed the use of Russia of ‘what would appear to be actual in-orbit anti-satellite weaponry’.
The successful International Space Station (ISS) programme is a multi-national collaborative project between five space-agencies: NASA (US), Roscosmos (Russia), JAXA (Japan), ESA (Europe), and CSA (Canada). Whilst the US and Russia have fully co-operated on the ISS, with worldwide interest in accessing and exploring space returning, there are fears of another space race emerging. Russia, the UK, US and China are among 100 nations to have committed to a space treaty that stipulates that outer space is to be explored by all and purely for peaceful purposes. America will no doubt use these talks to emphasise that outer space is not a lawless and ungoverned territory.
While not an immediate concern for investors, the deterioration in relations between the UK and Russia is a reminder that sadly, while we are a member of G7, we are simply not in the same league as the three super-powers – US, China and Russia. With a new technology ‘Cold war’ underway and coming on top of the economic headwinds from the Covid-19 pandemic, strained relations between the US and its allies and China and Russia cannot be helpful.
What have we been watching?
Concerns about rising Covid-19 cases and the economic damage from the sudden re-imposition of fresh lockdown measures offset optimism about vaccine development, potential $1 trillion US stimulus package and a supportive message from the US Federal Reserve. Markets had been expecting a V-shaped global economic recovery but this could be threatened by fresh lockdown measures. However, the US market saw a familiar pattern re-emerging with the technology heavyweights, Apple, Facebook and Amazon all driving the NASDAQ index higher.
The European regional director of the WHO, said increasing infections among young people could be driving the recent spike in cases across Europe. Germany’s public health agency said it is ‘very concerned’ by rising infections in the country. The warning comes as countries across Europe grapple with clusters of new cases and the problem of tourists moving across the continent for the summer holidays. This is a similar challenge in Asia with Vietnam, which has had no cases for three months, seeing a surge in cases linked to the coastal resort of Da Nang which was visited by 80,000 tourists last weekend. Elsewhere, Hong Kong’s leader Carrie Lam warned the city was on the ‘verge of a large-scale community outbreak, which may lead to a collapse of the hospital system and cost lives, especially the elderly’. In America, six states recorded record numbers of cases while Texas joined California and New York with more than 400,000 cases. In the UK, new restrictions have been introduced across an area including Greater Manchester and Bradford affecting over 5 million people.
The Bank of England reported mortgage approvals bounced back sharply in June as the housing market starts to re-open, although remaining well below pre-Covid-19 levels. However, unsecured lending decreased by 3.6%, the biggest contraction on record, although the pace of repayment of debts by consumers did moderate in June.
Germany’s IFO survey recorded a third straight month of improvement in July, a promising sign for economic growth in the third quarter. This follows the second quarter data which revealed the German economy contracted by over 10% – its fastest rate on record.
Key US non-defence capital goods data showed a 3.3% increase, month-on-month in June, pointing to a tentative recovery in business investment. Meanwhile, Republican politicians put forward a proposal for another Covid-19 stimulus bill worth $1trillion but the Republicans and Democrats appear to be far from reaching an agreement. The plan would see American adults receive a $1,200 payment. Meanwhile, US consumer confidence dipped in July which is no doubt a result of the renewed jump in Covid-19 cases in several states. The Federal Reserve noted that the recent cases in Covid-19 cases has begun to weigh on confidence and activity levels but re-iterated the ‘whatever it takes’ message giving a clear signal that an extension of asset purchases is coming.
Meanwhile, President Trump has called for November’s presidential election to be postponed, saying increased postal voting could lead to fraud and inaccurate results. Is he ‘clutching at straws?’ The announcement comes after the release of data that revealed that the US economy contracted by almost 33% in the second quarter due to Covid-19 – the deepest decline since records began in 1947. Credit ratings agency Fitch downgraded the outlook for the US from stable to negative, to reflect the ongoing deterioration in public finances, although re-affirmed its ‘AAA’ rating. This has created Dollar weakness with Sterling climbing to above $1.30.
China’s manufacturing sector improved at the quickest pace in almost 10-years and recorded a third successive month of growth as the country continues to recover from Covid-19.
Finally, another sign of changing consumer habits due to Covid-19. A survey by property website Rightmove has found that searches for homes with gardens have doubled since last year. Furthermore, homes advertised with south-facing gardens sold two days faster and were priced £23,000 more than those without.
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