Hello, and welcome to our latest client update as Europe starts to ease the lockdown and everyone wonders what the ‘new normal’ will look like once the UK returns to work.
As with the update we wrote just before Easter, this one is coming to you a day early to allow for the VE Day Bank Holiday on Friday (although most of the EF team will be working if you need us). The stock market figures quoted below were therefore correct at close of business in the relevant market on Tuesday, with the commentary written on Wednesday morning and then, as always, revised after the latest Government briefing.
This has been a short week, and it has been a week in which the bad news has outweighed the good. Last week brought us the fall in US GDP in the first quarter and this week that has been reflected in company news, with several companies announcing job losses.
At the moment, these have perhaps been most keenly felt in the aviation industry. With social distancing on flights and health screening before check-in both looking inevitable, air travel suddenly seems a lot less attractive.
Renowned investor Warren Buffet announced that he was selling all his stock in US airlines, saying he “sees no upside,” and GE announced that it would cut 25% of jobs in its aviation division, amounting to 13,000 jobs.
Closer to home, Rolls Royce said it could cut up to 8,000 jobs as aircraft manufacturers around the world were forced to scale back production.
Similar concerns will apply to bus and rail travel – perhaps the death knell of privatisation for this sector and renewed debate about some form of public ownership?
As job losses mounted and stock markets fell, the Independent dubbed last Friday ‘the saddest day we have seen for the global economy.’
Fortunately, the world governments are taking action. In the UK, ‘Bounce Back’ loans are now available for small businesses, with the participating banks receiving over 100,000 applications on the first day. These loans, which are for amounts between £2,000 and £50,000 and repayable over a six year term, will undoubtedly save many small businesses which might otherwise have failed.
Looking at the wider economy, trade talks between the UK and the US have started (in parallel with the ongoing Brexit talks), with both sides seemingly determined to reach a free trade agreement in record time. Although what that means in terms of trading and environmental standards as well as US access to our market, I’m sure may cause many of us further concern.
As we have commented previously, a week (especially a six day one) is a very short period of time when you are reporting on stock market movements. One piece of bad news can adversely affect markets, and in such a short space of time they don’t have a chance to recover. So it was this week, with worries about US/China tensions over Coronavirus. Throw in the sharp drop in US factory orders, clearly with worse to come, and all the major markets on which we report fell this week, with just one exception.
It is worth stressing though, that markets like the UK, the US and Germany are all higher than they were two weeks ago. This week’s falls did not wipe out the previous week’s gains.
The UK’s FTSE 100 index fell by 4% in the week, starting at 6,115 and closing Tuesday at 5,849. Two of the world’s leading emerging markets, India and Brazil, were down by a similar amount.
Most markets were down by slightly less: the US Dow Jones index, the German DAX index and the markets in Hong Kong and South Korea all fell by 3%. The Dow Jones opened the week at 24,634 and ended it at 23,883.
The one major market to buck the trend was China’s Shanghai Composite index, which rose 1% in the week to 2,860.
The pound almost managed to be completely unchanged against the US dollar in the week, starting its trading at $1.2447 and ending it the smallest fraction down at £1.2446.
As we have noted, last week brought its fair share of bad news. Admittedly, there now seems to be desire to loosen certain aspects of lockdown, although much of that narrative seems to come from UK Government and business. At the same time an Ipsos Mori poll shows many people err on the side of caution, having strong concerns over going to public events or traveling on public transport to go to work.
As many of our clients know, we stay in very close contact with the industry’s fund managers, the professionals who manage the money our clients have invested. They are going to face some significant challenges as the world returns to the ‘new normal.’ As we have seen with the aviation industry, some sectors of the economy will be permanently changed by Coronavirus. We will stay in regular and close contact with the fund managers as they develop new investment strategies and make sure our clients are always updated.
In 1991 Gerald Ratner famously crashed his business with ill-considered comments about the quality of his firms’ product at a business dinner. As evidence that business leaders fail to learn lessons about public pronouncements, we leave you with news of someone who scored a spectacular own goal this week. Elon Musk, founder of US car company Tesla, tweeted that he thought the share price was too high, and promptly wiped $14bn (£11.3bn) off the value of his company.
And finally, consumers in the UK and Europe are being urged to eat more steak, chips and cheese during lockdown. Due to the closure of restaurants and bars there is a surplus building up in warehouse with no outlets open to take the stock. The problem is, apparently, especially bad in Belgium where the country’s 5,000 frites stands are all closed.
We can hope that this perhaps heralds a rethink in the catering trade towards more local, seasonal and fresh food – but meanwhile, its seems to be a case of ‘chips with everything’.
Hopefully, by the time we send our next update, with Nicola Sturgeon due to comment today and Boris Johnson to make a statement on Sunday, there will be clarity as to if and when there will be an easing of lockdown across the UK or whether we in Scotland will be taking a different approach.
We hope that you like the new format of this email update. We’ll be in touch again next week and in the meantime, with winter due to make a return this weekend there is less incentive to head out – so stay safe and keep well.