What Markets Should Investors Watch as the UK Leaves Lockdown?
The easing of lockdown measures this summer will be a significant event for businesses. But what will it mean for stocks, commodities and crypto?
Finance Monthly hears from Giles Coghlan, Chief Currency Analyst at HYCM, on what UK investors should keep their eyes on as June approaches.
As pubs, restaurants, shops and gyms all over the country begin to re-open their doors, all eyes are on the UK’s post-pandemic economic recovery.
For one, there is a sense optimism throughout the country. The rollout of the COVID-19 vaccine is on course (half of UK adults have now had at least one jab) and social distancing measures are being relaxed. Unemployment has fallen at the start of 2021, while inflation is holding steady.
As with any major societal change, all these things are naturally impacting the financial markets. The construction industry, for example, is experiencing strong growth as a backlog of projects spark back into life, and we can expect to see similar trends in other sectors as more retail, hospitality and leisure establishments re-open.
With all this in mind, here are some key themes and developments that investors should watch in the months ahead.
Throughout the pandemic, the so-called FAANGs stocks of Facebook, Apple, Amazon, Netflix and Google have been central to the US stock market’s record bull run. As investors have pumped huge sums into global equities, the tech giants have been among the greatest beneficiaries of the stay-at-home economy.
Given that stocks have generally been on a great run higher since March last year, with record highs and strong returns, investors must now seriously consider just how sustainable this pace is. In particular, traders and investors should watch for a seasonal shift, which might mean that these stocks lose their bite. One possible scenario could see the old adage “sell in May and go away” ring true, with the arrival of the summer months prompting investors to exit their stocks.
As investors have pumped huge sums into global equities, the tech giants have been among the greatest beneficiaries of the stay-at-home economy.
Further, as more lockdown restrictions are removed, naturally, society at large will be less dependent on tech to go about our lives as normal. As such, it will be interesting to see how tech stocks will fare throughout this period, and whether they become a less appealing prospect to investors.
Meanwhile, traders should also monitor the performance of stocks in the retail, hospitality, retail and leisure industries as the UK progresses on its roadmap to ease the lockdown. Companies in these verticals could achieve impressive growth when life returns to something resembling normality.
As the US economy begins to awaken, US bond yields have been on the up, meaning that Gold Exchange Traded Funds (ETFs) have continued to fall. This is a trend that should please the Fed, and is reflective of a far more optimistic outlook.
Particularly as expectations of life as normal inch closer, should the US economy continue to improve, rising yields will no doubt put further pressure on gold, which has already seen one of its worst starts to the year in 20 years.
Ordinarily, the beginning of the year is a period of strong demand for the precious metal, with the Chinese New Year usually attracting gold buyers. From a seasonal perspective, for the past ten years, gold has been flat between April and June; with the 2013 taper tantrum, gold lost nearly 20% between March and September alone.
Consequently, traders should watch for a possible sharp sell-off in gold should the Fed begin to talk about tapering.
BTC and cryptocurrencies
There has been strong media attention on cryptocurrency in recent months, with talk of Bitcoin garnering significant headlines. This is unsurprising, given that Bitcoin’s market capitalisation is now valued at a remarkable $1.2 trillion, putting the cryptocurrency ahead of Mastercard, PayPal and Visa combined.
Even accounting for a recent blip, the crypto boom is noteworthy. It will be interesting to monitor how long these gains will continue.
In recent weeks, it is important to note that Bitcoin’s latest valuation came in at the same time as Coinbase launched an initial public offering – making it the first firm of its kind to do so. The arrival of Coinbase now offers many equity investors a straight bet into the cryptocurrency landscape, which could be met with strong gains in Bitcoin.
No doubt, this is a significant event in the busy cryptocurrency market – one that investors and traders should keep up with in the coming months.