Money Awareness Commentary
13 August 2020
To all Financial Friends
Yesterday's financial news confirmed a massive drop in UK GDP (Gross Domestic Product) of over 20% with the UK falling into the deepest recession on record. The FTSE 100 rose by 2.04% while Gold fell in dollar currency terms by over 5%. This activity seems unreal given the bad news. However investors anticipate the need for greater stimulus of the UK economy implying the printing of even more money and even further reduction of interest rates. When stimulus is anticipated investors move from risk averse (gold and fixed interest) to risk, buying into shares (equities) and pushing up the price.
Consideration leads to us seeing that equity markets are moving higher based on support of an economic system supported like a hospital patient in intensive care. This is not the real economy so at some point along the way the day of reckoning will come, and equities will fall - profit takers with stored cash will then be able to take advantage and buy up at low prices and maximise later returns.
The stimulus of the economy may continue for quite some time giving rise to several more profit taking opportunities. This is why risk takers will want to stay put with their fund choices. Risk averse students will remain more comfortable in their fund choices and may yet see unusually high returns as uncertainties continue.
PLEASE NOTE: A financial or economic commentary like these, are written to explain, interpret or give an opinion on economic events and markets to help readers understand what’s happening and why it matters. Designed to help you make informed decisions of your own by making you aware of opportunities, risks and potential rewards in the market.
