Tax Tables 2021/2022

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Monthly Market Outlook – January/February 2021

Following the positive news that COVID-19 vaccines had been developed, there was hope that life might return to normal sooner rather than later. This optimism caused investors to rotate out of many companies that have fared well during the pandemic, to businesses in relatively harder-hit cyclical sectors. This rotation continued into the new year; however, as concerns over new variants of the virus have developed, optimism has waned, and to some extent, this rotation has reversed. Whilst the flow of news has been unrelenting, the prospects for further fiscal support, prolonged low interest rates, and the wider rollout of vaccines is expected to continue to support equity markets.

In the US, Joe Biden was sworn in as the 46th President. The transition may have been delayed by Trump, but the Biden administration is progressing quickly. His focus, as was reflected in his inaugural address, is on the pandemic and climate change, seeking unity and multilateralism in achieving these goals. The new President has already listed a stream of executive orders; including a $1.9 trillion relief package, which has been opposed by most Republicans; however, he may yet seek a compromise deal. US Treasury secretary, Janet Yellen, said the US could reach full employment next year if Congress passes the stimulus package. Her comments on stimulus, delays in tax rises, and reassurance that Trump’s corporate tax cuts are to be only partially reversed, were taken favourably by the stock market. As former Chair of the Federal Reserve (Fed), she is likely to give them all the powers they need to support the economy. There have always been fears at the start of Democratic administrations, of them being less business friendly, but historically, the US stock market has generally done as well under Democrat Presidents as Republicans.

At the Bank of England (BoE) Monetary Policy Committee meeting, they discussed if they could include negative interest rates as part of their toolkit. They decided to rule this out for the time being; however, if new variants of the virus become prevalent and cause further lockdowns, curtailing economic activity for longer, then the BoE may have no choice but to resort to negative interest rates. Throughout the pandemic, the BoE’s main tool for easing policy has been Quantitative Easing. However, with the BoE now owning much of the bond market, using this tool in the future against unexpected economic shocks may prove less effective, and may mean resorting to interest rate policy again. Whilst the outlook for growth in the UK was revised downwards given the current lockdowns, a strong rebound is still expected later this year. When the economy re-opens, consumers will be eager to spend their savings to enjoy leisure activities. The success so far of the vaccination campaign gives increased confidence in this outlook.

Following the Brexit deal at the end of last year, companies that trade across the border are adapting to the new trade rules. As this happens, difficulties are emerging, particularly over the Irish border. An extended grace period may be needed whilst these issues are smoothed over. Anecdotally, trade across the channel is also being delayed by the new paperwork. In Europe, the delivery of the vaccine has been much slower than in the UK, highlighting some of the problems associated with European bureaucracy. The EU threatened to stop deliveries of vaccines manufactured within the EU to the UK, but this was in breach of the Brexit agreement, and they backed-off rapidly.

Overall, we expect fiscal and monetary policy to continue to support developed economies. However, we continue to encourage a selective approach to equities and corporate bonds, focussing on companies with attractive long-term growth prospects, robust business models and strong balance sheets.

Monthly Market Outlook – November/December 2020

This year has been a turmoil of events; while many of our experiences of COVID-19 were the lockdown restrictions affecting our lives, it is important to recognise the tragedy of 1.6 million1 people that have died globally because of the virus. We started the year off on a firm footing, to then be hit hard by the pandemic and the unprecedented events that followed the outbreak of the coronavirus and the national lockdowns experienced globally. We are, however, looking to end the year on a more positive note again with vaccines in focus. The flow of news has been unrelenting, with significant economic and market-related developments occurring on an almost daily basis. It is no surprise then that the dispersion of returns between different geographies, styles, sectors and asset classes has been extraordinary.

The more vulnerable members of society and health workers have already started receiving vaccinations. However, manufacturing and distribution of the vaccines at scale will take some time, and it may not be before mid-2021 when the other vaccines become widely available, to help ease supply. However, there is some much-needed light at the end of the tunnel, and life should gradually return to ‘normal’. In the meantime, the virus continues to spread and measures to counter the pandemic, may be in place in one form or another for much of next year. As a result, it is still too early to be tightening financial conditions, and a continuation of the coordinated support, from both fiscal and monetary authorities, is still needed to prevent long-lasting economic damage.

President Trump’s legal efforts to overturn the election result was in vain, as the electoral college confirmed Joe Biden as the President-elect. Joe Biden’s campaign and nominations for key posts give us a clear idea of the direction he expects to take. One appointment worth highlighting is Biden’s nomination for Treasury Secretary, former chair of the Federal Reserve (Fed) Janet Yellen. Yellen will no doubt want to give the Fed as many tools as possible, enabling it to provide continued support to the US economy as it recovers from the pandemic. Some of Biden’s early initiatives will likely include re-joining the World Health Organisation and the Paris Accord on climate change, as well as increased spending on environmental projects. Should the Democrats fail to gain control of the Senate, Biden’s spending plans and proposed tax rises may be diluted. However, a more measured approach to diplomacy should still be welcomed by markets that dislike uncertainty.

However, some things stay the same; there has been little visible progress on a post-Brexit trade deal with the three key sticking points remaining unresolved. The first is the so-called “level playing field”, and whether the UK should continue to stick to EU rules on issues like workers’ rights, environmental regulations and state aid. The second is governance, to ensure both sides keep to any deal. And finally fishing, with the EU wishing to retain access to UK waters for EU fishermen. Even if these issues are resolved, the agreement would still need approval by each individual state, which may yet prove problematic. Boris Johnson warned that there is a “strong possibility” no agreement will be made, but insists this is not necessarily “a bad thing”. That said, both sides have agreed to “go the extra mile”, and talks continue. In the event of a no-deal Brexit resulting in World Trade Organisation terms, tariffs would be introduced on goods traded between the UK and EU. The concern, however, is less about the cost of the tariffs, but the administrative burden and the potential disruption this would bring.

Despite such an eventful year, many equity markets have hit all-time highs; a poignant reminder that keeping calm and carrying on investing during volatile times has proven to be the right strategy. Looking ahead to 2021, volatile markets are here to stay, but risk-assets should remain supported by low interest rates and a gradual return to normality.

Monthly Market Outlook – October/November 2020

The motto ‘Keep Calm and Carry On’ was developed in 1939 by the British Government in preparation for World War II, but the saying seems just as pertinent today. In a world that is increasingly unpredictable, it can be challenging to heed this time-tested advice, especially when markets can fluctuate wildly day-to-day. As markets absorb the news flow, we can expect sharp moves in either direction. The market’s jitteriness can be unsettling when looking through a short-term lens; however, when evaluating markets with a long-term mind-set, the fluctuations can reveal significant opportunity.

The US election once again surprised investors and pollsters alike. Trump performed better on the day given his campaign efforts; however, the postal votes swung heavily in Biden’s favour. Biden is projected to win the Electoral College vote, but given the slim margins in key states, Trump has legally contested this, and has refused to concede defeat. Despite the disputed result, we still expect Biden to be President and he has already been congratulated by many world leaders. The failure of the Democrats to take control of the Senate may have contributed to the positive market moves, as it means Biden’s higher tax plans and regulatory threat to ‘Big Tech’, may be diluted. With the Senate still in Republican hands, borrowing may also not rise as much as feared. Trump’s legal challenges to the election may distract lawmakers from getting a stimulus package agreed. Given the infection rate continues to rise at a record rate in the US, it is in the interest of both sides to agree further fiscal stimulus to slow or reverse the recent recovery.

News that the COVID-19 vaccine being developed by Pfizer and Germany’s BioNTech was found to be more than 90% effective, has lifted the mood across equity markets and some of the most beaten-down sectors in particular, as investors rotated into sectors such as leisure and travel. Whilst the vaccine is certainly a most welcomed scientific breakthrough, in the midst of this euphoria, we should remember that the pandemic is far from over, and cases are still rising. Even if the vaccine is approved later this month, Pfizer will have only 50 million doses available this year and 1.3 billion by the end of 20211. Given two doses of the vaccine are needed per person, this would only be enough to treat 650 million people, or just 8% of the world population. We still need to see positive news come through from some of the other vaccines on trial at the moment before calling an end to the pandemic.

In Europe, rising cases have led to the re-imposition of lockdowns. The UK joined France and Germany as the latest country to announce a full-scale lockdown. To support businesses, fiscal and monetary policy has remained largely accommodative. The European Central Bank (ECB) has indicated they are prepared to do more in December. In the UK, the Bank of England (BoE) has decided to increase the amount of quantitative easing by £150 billion, for a total of £875 billion by the end of 2021. The BoE also stands ready to do more, should the UK economic outlook deteriorate, particularly in response to the outcome of Brexit. Talks remain ongoing, with the deadline for getting a post-Brexit trade deal continuing to move further out.

With markets swinging wildly, we encourage investors to ‘Keep Calm and Carry On’, investing in companies with attractive long-term growth prospects, robust business models and strong balance sheets. Over the long-term, it is these companies that should perform well, albeit they will not be immune from the volatility. We continue to favour a selective approach to equity and credit.

Monthly Market Outlook – September/October 2020

Whilst the pandemic continues to dominate the headlines, the US election campaign is now in full swing, Brexit negotiations press on, and the European Union continues to review the details of their recently proposed recovery fund. Markets are likely to remain volatile as these events unfold.

Markets were already expecting a turbulent US election, but the news that President Trump tested positive for COVID-19 added a further sense of nervousness. The event held in the White House to announce the nomination of Amy Coney Barrett to the Supreme Court, where guests mingled without masks or appropriate social distancing, was the catalyst for a cluster of cases. With this news markets initially dipped, then recovered, as Trump appears to have made a swift recovery. Having been hospitalised, Trump says he now feels in good health. A day after returning to the White House, the President, in a flurry of tweets abruptly cancelled negotiations over the next US stimulus package, and said he would only resume talks after the election. After the stock market reacted negatively, he relented, and now appears ready to make a deal again to boost his economic credentials.

After a chaotic first presidential debate, opinion polls appear to indicate that Joe Biden is leading Trump ahead of the November election. As it stands, the Democrats have a good chance of taking control of both Houses of Congress; a so-called “blue wave”. This outcome would make it easier for Biden to enact changes, one of which would be the reversal of many of the tax cuts that the Trump administration has introduced. While it is unclear whether a stimulus bill will pass ahead of the election, should the Democrats take control, it is likely they will continue to spend heavily to stimulate the economy. The real danger for markets in the short run would be a disputed election, which could see a period of post-election infighting that would bring further fiscal support into question as the pandemic continues.

In the UK, post-Brexit trade negotiations have resumed, but the main sticking points remain unresolved. Further negotiations are needed to get a deal which is in everyone’s interests, but at present it looks as if the transition deal may end without a new trade agreement. At the same time, the EU continues to debate the details of their recently proposed €750bn recovery fund. The fund remains a historic breakthrough, bringing sizeable financial support for countries worst hit by the pandemic; however, concerns are mounting regarding its eventual implementation. This is particularly pertinent as Europe, and a number of other regions, contend with a second wave of the virus. Monetary and fiscal policies should remain complementary, and the support they provide may be needed for a long time.

Clearly, the remaining period leading up to these events will see volatile markets. A contested election, will undoubtedly add to market volatility beyond the 3rd of November. However, a great deal of monetary and fiscal support remains in place. With long-term low interest rates, equities should continue to be the favoured asset class. We encourage investors to look through the day-to-day noise and focus on companies with attractive long-term growth prospects, robust business models and strong balance sheets. In the end, a sustained recovery in economic growth may depend on the development of an effective vaccine. Progress on treatments and effective vaccines are likely to be more important for long-term sentiment than any of these events.

Monthly Market Outlook – July/August 2020

So far this year the dispersion of returns between different geographies, styles, sectors and asset classes has been extraordinary. Many equity markets have recovered substantially since the March lows, although the recovery has been far from smooth. As we move towards the end of the year, three topics are likely to be at the forefront of investors’ minds: the continued evolution of the COVID-19 pandemic, the presidential election in the US, and conclusion of Brexit trade negotiations.

Lockdowns have eased as the spread of the virus has been better contained; however, there have been signs of a second wave in Europe and elsewhere, which could reverse the easing of restrictions. The UK has now imposed quarantine restrictions on people returning from Spain, and is considering whether to impose the same restrictions for France. In certain parts of Northern England, localised lockdowns have already been re-imposed. These strict lockdown measures have proven an effective method in reducing the spread of the virus, albeit at an enormous economic cost. On a positive note, treatments appear to be more effective and the proportion of people dying as a result of the virus has declined. Whilst considerable efforts continue to be devoted to the development of a vaccine, at the moment it appears to be two steps forward, one step back.

The polarised nature of the US election may add volatility to the markets for the rest of the year. Whilst the Democratic candidate and former Vice President, Joe Biden, may be less friendly to big businesses compared to President Trump, he could however ease trade tensions with China. Trump’s handling of the pandemic has led to a fall in his polling ahead of the November election, yet despite Biden’s clear lead in the polls, few investors seem keen to call the outcome of the election. Given the surprise of the 2016 election, we cannot write off a Trump comeback. In the meantime, reaching an agreement on fiscal action may be difficult as Trump will be ready to impugn anything that threatens his hold on power. However, it is in no party’s interest for the economy to slump and unemployment to remain elevated, so we can expect fiscal and monetary stimulus to continue. Despite many polls writing off the incumbent President, we should not expect the election to be a simple coronation for the new candidate.

Against the background of the COVID-19 crisis, Brexit trade negotiations continue. The EU and UK are still as far apart as ever, with no progress on key sticking points. EU leaders appear to be talking of discussions going on until October. However, without any tangible signs of a resolution, we risk heading towards leaving without a trade deal in place. Brexit remains a drag on the UK market, which has been a serial underperformer in recent years. It has become clear we would need to see a favourable resolution to post-Brexit trade talks to support more domestically-oriented stocks, and to encourage international investors to return to the market.

Whilst a resolution to each of these events does not appear imminent, it is possible the situation will change as we move into the final few months of the year. Should there be widespread availability of an effective COVID-19 vaccine, clarity on the next President of the US, or a resolution to Brexit negotiations, we could start to see further support for markets. In the meantime, as markets continue to balance these issues with continued fiscal and monetary stimulus, we expect volatility to be high and the dispersion of returns to remain wide. We therefore continue to encourage a selective approach to equities and corporate bonds.