Welcome to our latest client update. It has been a turbulent week, as protests in America over the death of George Floyd spread around the world. It ended with more tension between the US and China as the US announced it would ban passenger flights from China from the middle of the month.
Despite all this, world stock markets enjoyed an excellent week, as we report below. As always, the stock market figures quoted were correct at close of business in the relevant market on Wednesday, with the commentary written on Thursday morning and revised after the Government’s briefing in the evening, which saw wearing masks on public transport become mandatory from 15th June.
The Latest News
Let’s begin in the car industry, with the news that the UK manufactured just 197 cars in April. But as car showrooms up and down the country re-opened, there was far better news for the UK as Nissan closed its factory in Spain, amid strong rumours of the production of two Renault models being moved to Sunderland.
Chancellor Rishi Sunak confirmed that the furlough scheme would continue until October, and there was also a second payout for the self-employed as he continued his delicate balancing act of supporting jobs and the economy, but also keeping the overall cost of the support under control.
With more than a quarter of UK workers now furloughed, there are certain to be some major initiatives on job creation from the Government. Boris Johnson is scheduled to make a speech on post-crisis jobs programmes at the end of the month, and it is rumoured that this will be followed by a fiscal statement from the Chancellor early in July.
The week ended with the Government announcing that anyone arriving in the UK would face a 14 day quarantine period, a move widely condemned by both the travel industry and business groups. Portugal announced that UK holidaymakers would be “most welcome” with the Portuguese foreign minister expecting an ‘air bridge’ to be in place by the end of June. Let’s hope that a week in Faro does not mean two weeks in isolation when you return…
What of news away from the UK? As we mentioned in the introduction, this has not been the best of weeks for the United States. There has now been a week of rioting, and tensions with China continue as the clock ticks down to November’s Presidential election.
Renault announced that it would be cutting 15,000 jobs around the world and in the Far East, two major banks – HSBC and Standard Chartered – said that they would support China’s new security law in Hong Kong.
The Stock Markets
Italy has long been seen as one of the countries most vulnerable to a prolonged economic downturn. There was little sign of that in the week just ended, as the Milan stock market rose an impressive 10% to 19,642. The Indian market also recovered from some recent falls, rising 8% to 34,110.
Among the more mainstream markets, the German DAX index rose 7% to close Wednesday at 12,487. Both the US and Chinese stock markets were up by 3%, the only time the two countries were in step all week, with the Dow Jones finishing at 26,270 and the Shanghai Composite at 2,923. The Hong Kong market was also up, rising 4% to 24,326.
At home, the FTSE-100 index of leading shares also had an excellent week, closing Wednesday up 4% at 6,382. The pound was also up against the dollar during the week, rising 3% to end at $1.2588.
We have long believed that economies and markets around the world will recover from this crisis, and there was plenty to support that view this week.
In China, e-commerce giant Alibaba said it has seen a ‘steady recovery’ since March, with strong demand for groceries, electronic products and cloud computing. In the UK, Oxford Economics is predicting a strong economic recovery in the second half of the year.
But is there any historical precedent to suggest that we will see a ‘strong recovery’ once the pandemic is over? In the 14th Century, the Black Death ravaged Europe and, as an article in City AM pointed out this week, there are some remarkable similarities between that pandemic and the current one.
Obviously the Black Death was far more lethal, depending on your source killing between 30% and 60% of Europe’s population. But people quickly worked out that it could spread from person to person. Those who could fled from infected areas, locking themselves away in castles and monasteries. The peasantry had far fewer options, but still sought to limit contact with the outside world.
There was a shortage of PPE in the 14th Century. Gloves, in particular, were in short supply, with glove makers trying to poach employees from their rivals. Unlicensed glove production – often of poor quality – soared.
And there were scams and people who took advantage of the situation. William of Liverpool offered to take away the bodies from one village and bury them in what he promised were his ‘extensive fields.’ He was convicted of fly-tipping the bodies on his way home.
The key point, though, at least as far as this update is concerned, is that economic activity recovered remarkably quickly once the pandemic had passed. It was not action by the state which delivered this, but the determination of 14th Century entrepreneurs to rebuild their businesses. Confidence, from both business owners and consumers, recovered quickly.
As we have written previously, we are absolutely certain that history will repeat itself. Human nature does not change. Sadly, the successors of William of Liverpool are equally busy in the current crisis. But so are the successors of those 14th Century entrepreneurs who rebuilt the country once the pandemic passed.
Clearly, world stock markets shared our views this week and, although there will be plenty more bad news to come, we remain firmly optimistic.