Hello, and welcome once again to our weekly client update. It was a week where the UK news agenda was dominated by the row over Dominic Cummings, the Prime Minister’s special adviser, and his lockdown trip to County Durham. Doubtless, there will be further ramifications to this story but as we’ll see below, though, there were far more important long-term issues than one man’s ‘test drive’ to Barnard Castle.
As always, the stock market figures we quote were correct at close of business in the relevant market on Wednesday evening. The commentary was written on Thursday morning and afternoon, and then finally revised after the Government’s briefing on Thursday evening.
The Latest News
This week brought significant easing of the lockdown in Europe. In the UK, we saw further evidence of the devolved nations adopting different approaches to that of the UK Government’s policy for England. In Scotland, we saw caution and clarity from the Scottish Government with a plan based on Word Health Organisation’s six criteria. As we enter Phase 1 of the move from ‘lockdown’ with some easing of socialising and sporting activity, it seems as though there will be further divergence from England where the news is that all ‘non-essential’ shops in the UK will be open by the middle of June. This caution may will have impact on the short term economics of our society but they seem to be more in line with public opinion.
The really big news was in China, where the parliament backed a new security law for Hong Kong, making it a crime to undermine Beijing’s authority in the territory. One pro-democracy legislator in Hong Kong said, “Hong Kong as we knew it is effectively dead.” The new law could see China install its own security agencies in Hong Kong for the first time. Western governments have, predictably, made vociferous protests.
In the UK, it was reported that Government borrowing has shot up to levels last seen in the 1950s – little surprise with the furlough scheme now covering 8.4m workers.
Companies are undoubtedly going to face difficulties as the furlough scheme winds down and they have to start paying part of employees’ wages again. Most economists now seem to accept that a ‘V-shaped’ recovery from the crisis is unlikely.
This, sadly, was the week when some of the threatened job cuts became a reality, with EasyJet saying it will cut “thousands” of jobs and, across the Atlantic, nearly 40m Americans now receiving unemployment benefit.
China, having met or exceeded its economic growth target every year since records began in 1990, formally announced that this year there will be no growth target.
It was another week when rescue packages were in plentiful supply. “This is Europe’s moment,” declared EU Commission President Ursula von der Leyen, as she proposed a rescue package worth €750bn (£670bn) to tackle an “unprecedented crisis.” It will be made up of grants and loans for every EU member state and – as we report below – the news was warmly welcomed by Europe’s stock markets.
On a smaller scale, France was planning an €8bn (£7.2bn) rescue package for its car industry, and Lufthansa agreed a €9bn (£8.1bn) package with the German government – a move promptly branded illegal by Ryanair boss Michael O’Leary – but perhaps he should focus on paying out passenger refunds instead.
In the UK, the Government gave a clear indication that it was prepared to rescue ‘key British companies’ and – perhaps the best news of all – Spain announced it would stop quarantining foreign visitors from 1st July……….just in time for the ‘Trades’ and ‘Fair’ fortnights!
The Stock Markets
On the whole, the news from the world’s stock markets was good this week, with three major markets – the US, Japan and Germany – making significant gains. All the leading European markets responded positively to the rescue package we mentioned above, and the German, French and Italian indices were all up 4% in the week, the German DAX index closing at 11,658.
The US Dow Jones index was up by a similar amount to 25,548 while in the UK, the FTSE 100 index of leading shares rose 1% to close Wednesday at 6,114.
In the Far East, Japan’s Nikkei Dow index was up to 21,419 while the South Korean index rose 2% in the week. But both China’s Shanghai Composite index and the Hang Seng index in Hong Kong were – perhaps unsurprisingly – down in the week. The Shanghai Composite was down 2% to 2,837 while the Hong Kong market fell 5% to end the week at 23,301.
The pound had another uneventful week, closing Wednesday at $1.2252 – unchanged in percentage terms for the second week in a row.
It has been another week of good and bad news – as long as this crisis continues, there will always be good and bad news.
By far the most worrying was the news coming out of China: as we wrote last week, the world’s recovery will not be helped by a succession of trade disputes and you cannot think that heavy-handed action in Hong Kong will improve China’s standing in the world. We can only wait and see what develops…
Looking at countries who entered this crisis a head of us, we are heartened by a range of efforts to help people and society adjust and to get economies around the world up and running again. We may not see a V-shaped recovery in the UK, but we will unquestionably with every step in recovery, new economic interactions will occur and gradually we will see a recovery. Behind the scenes, in investment circles, there is increased recognition that this has to be a recovery where environmental, social and corporate governance issues are taken fully into account.
Before we move on to rather lighter events, we should perhaps end with a word of caution. This crisis seems to have quickly divided people into ‘good guys’ and ‘bad guys.’ The bad guys have been out in force, with a series of scams ranging from offering to go shopping for vulnerable people (and disappearing with the cash) to sophisticated frauds targeting major companies.
We would urge all our clients to be extra vigilant at this time. The FCA run a good website called ScamSmart and if in doubt we recommend that you to check it. The old adage – if it seems too good to be true, it is too good to be true – has never been more relevant.
For avid news and social media watchers, the Dominic Cumming ‘DurhamGate’ scandal has been the gift that keeps on giving. Whilst the political debate raged, we noted that the meme creators & humourists moved into overdrive producing a plethora of witty and satirical comment. Indeed the tourist site TripAdvisor has had to stop postings to its section on Barnard Castle, such was the number of faux comments purporting to be from one Dominic Cummings or other riffs, such as the ‘advert’ modelled on the SpecSavers logo – “Should have gone to Barnard Castle”.
Perhaps a more positive and, given the weather, a more enjoyable way to soothe one’s demeanour on the topic would be a can of Barnard Caste Eye Test IPA from Scotland’s own Brewdog, with proceeds funding free sanitiser for NHS.