President Trump makes more headlines

President Trump makes more headlines

The Noise

  • President Trump has made multiple headlines this week, firstly on Sunday after the New York Times reported that the president paid $750 of income tax in both 2016 and 2017. The first presidential debate ahead of the November US election then descended into childish bickering and finally, confirmation came last night that the President and First Lady have both tested positive for Coronavirus.
  • Democrats in the House of Representatives pushed through their $2.2tn stimulus package on Thursday. The bill will provide aid to families, schools, restaurants, businesses and airline workers. The vote marked the second time since May that the lower chamber of Congress has passed legislation to support for the US economy without the backing of Republican lawmakers and the Trump administration.
  • Yesterday, the EU began legal proceedings against the UK after it refused to abandon plans to override sections of its Brexit divorce deal. The “letter of formal notice” was issued on Thursday, which could lead to a court case in the European Court of Justice against the UK. UK-EU trade talks are continuing in Brussels this week. Prime Minister Boris Johnson has said both sides should “move on” if a deal was not reached by mid-October.

The Numbers

The Nuance

Once again this week, investors are reminded that markets have recovered despite the dreary economic context. The eventual economic recovery will likely not materialise for some time as governments continue efforts to hold back the second wave of infections without crippling businesses.

Despite short-term economic pains, markets still price in this eventual recovery and return to normality; long-term investors must remain patient whilst this dynamic runs its course. From week-to-week, individual news pieces will likely cause short-term fluctuations but whilst the economy heals and political squabbles persist, markets are likely to be range-bound, not moving persistently in either direction.

The fiscal stimulus will eventually come and when it does, markets should react positively. No politicians are fundamentally against the idea of stimulus; they’re simply arguing over the details: who should it benefit and how large should it be? Eventually they’ll come to an agreement safe in the knowledge that Jerome Powell and the Fed will support them.

Whilst markets bubble along, patience is key; overtrading in an attempt to play every short-term noise piece is a good way to destroy long-term gains.

Quote of the Week

“Subway’s bread is, of course, bread.”

A spokesperson for Subway,

For those of you unfamiliar with their foot-long sandwiches or the fantastic smell which wafts out of their shops, Subway is a fast food chain specialising in hot sandwiches. This week, Ireland’s Supreme Court ruled that the rolls used to make the sandwiches are too sugary to meet the legal definition of being bread. The implication of this ruling is that the company must pay 13.5% VAT on the rolls they sell which will not qualify for the tax relief of bread which is considered a “staple product”.