Hello, and welcome to our latest client update, in the week that saw the UK take its first steps towards easing the lockdown which has been in place since 23rd March.
This was a week with a lot of news, both good and bad, so we’ll get straight into the detail. As usual, the stock market figures quoted were correct at close of business in the relevant market on Wednesday evening. This commentary was written on Thursday morning, and then updated after the Government’s 5pm briefing.
The Latest News
The main news this week was that the UK economy had only contracted by 2% in the first quarter of the year. We write ‘only’ as most experts were predicting a fall of around 2.5%. In a similar vein, the economy contracted by 5.8% in March, against an expected fall of 7.9%.
Clearly there are far worse figures to come in April, when the country was in lockdown for the whole month, but so far the UK is at least holding its own. The French economy, for example, contracted by 5.8% in the first quarter.
As expected, Sunday brought the Prime Minister’s statement and the first steps on the road to rebuilding the economy. This is going to be an enormous undertaking, and not just in the UK. In the US, 33m people have now lost their jobs, with the unemployment rate standing at 14.7%.
But that figure is dwarfed by unemployment in India with a reported 122m people, roughly twice the population of the UK, losing their jobs in April.
Unsurprisingly, consumer confidence has taken a battering: a major survey reported that it was “severely depressed” in the UK. Equally, despite all the Government initiatives, a third of small firms believe they are in imminent danger of collapse. Chancellor Rishi Sunak has conceded that the country will face a “significant recession.”
There is, though, plenty of good news and optimism to set against the gloom. The new Governor of the Bank of England, Andrew Bailey, is optimistic that the UK economy could bounce back quickly. In the Bank’s latest report, he talks of ‘huge rises, as the economy is put back to work.’
Certainly the Government continues to do everything it can, with the Chancellor extending the furlough scheme to October and support packages also now available for the self-employed. The housing market has been released from lockdown and this week will see Ford re-start production at its car manufacturing plants in Dagenham and Bridgend.
The Stock Markets
We monitor 13 world stock markets for the update: usually the vast majority move in step, be it up or down. This week, though, was mixed: six markets rose, seven fell – although, once again, in a narrow range. For the time being at least, we seem to have seen the end of the sharp fluctuations which marked our earlier updates.
The best performance this week came from Japan’s Nikkei Dow index, which rose 3% to 20,267. All the markets in the Far East were up, albeit by only small amounts, while the Indian stock market rose 2% to 32,009 as the government there launched a $264bn (£216bn) Coronavirus rescue package.
All the markets in Europe fell slightly during the week, with the exception of the UK’s FTSE 100 index, which rose 1% to close Wednesday at 5,904. America’s Dow Jones had a poor week as US/China tensions rose again: it fell 3% to 23,248.
The pound was down against the dollar during the week, but for those people who like to keep things simple it closed at $1.2222 where it was down (obviously) by 2%.
This week, more than any other since we started writing this update, the news has depended on your perception of it.
Yes, UK GDP fell in the first quarter but, compared to other countries, we did relatively well. Nevertheless, the BBC – and plenty more of the mainstream media – went with ‘UK economy shrinks at fastest pace since 2008.’
There are economists-a-plenty telling us that ‘the worst is yet to come’ and that the UK ‘is heading for the biggest crash in 300 years.’ Not for nothing is economics known as ‘the dismal science.’
The question is whether you side with the optimists, like the Governor of the Bank of England, or the pessimistic media. We are, and always have been, in the former camp. Our comment of a few weeks ago bears repeating: new companies will find new ways of bringing new products to new markets.
Of course the road out of lockdown will be bumpy. Despite all the calls for ‘certainty’, there can only be two certainties: a full lockdown at one end of the scale and a free-for-all at the other.
Anywhere between the two and there will be bumps in the road. But there is plenty of light at the end of the tunnel, not least the news today that Public Health England says that a new Coronavirus antibody test, developed by Swiss company Roche, is 100% accurate.
With that positive news we’ll leave you for another week. Well, almost…
Last week we told you about Tesla boss Elon Musk, who won the ‘Own Goal of the Week’ by tweeting that the share price was too high and knocking $14bn (£11.3bn) off the value of his own company.
He did have some compensation when his girlfriend, a singer called Grimes, gave birth to a son. The young chap has been named X Æ A-12. It’s apparently pronounced X-Ash-A12 which will certainly make calling the school register interesting!