Hello and welcome to our latest client update, at the end of a week which saw increased pressure to relax the two metre social distancing rule to ‘save our summer’ and – sadly – the US reach 2m recorded cases of Coronavirus.
As always with the update, the stock market figures we quote were correct at close of business in the relevant market on Wednesday evening. The week has ended with markets turning volatile again but there will be more of that in our note next week. The commentary below was written on the morning of Thursday 11th June and revised after the Government’s 5pm briefing.
The Latest News
It was another week of mixed news for the UK. With shops due to open in England this Monday, there were calls for the Sunday trading laws to be scrapped in a bid to stimulate the economy. The other countries of the UK also continue to mull how best to ease lockdown without creating a spike in the now famous R number.
There will undoubtedly be an initial rush back to the shops. Whether it will be sustained remains to be seen. May was another tough month for the retail sector, with sales down 5.9% compared to the previous year as the growth in online sales failed to compensate for the slump in the High Street.
In the wider economy, the Government’s furlough scheme now covers 8.9m people, and the Times reported on fears of a ‘jobs bloodbath’ unless lockdown is eased soon. To complete the gloomy news for the week, the OECD forecast that the UK will be the major economy ‘hardest hit’ by the virus this year, with our economy shrinking by 11.5%.
As we report below, there are reasons to be optimistic, especially in the UK technology sector and trade talks began between the UK and Japan, aimed at reaching an agreement on a post-Brexit trade deal.
There was also good news in the US, where – against all expectations – the unemployment rate fell in May as companies started taking on staff again. Employers added 2.5m jobs in the month as firms in food, construction and the health care sector took on staff.
The Stock Markets
This was a relatively quiet week for world stock markets. Most of the markets we cover moved up in the week to Wednesday, but only marginally.
The markets in the US and Hong Kong led the way, with the Dow Jones index climbing 3% to 26,990 and the Hang Seng index up by the same amount to 25,050. We are also going to start reporting on the more broadly-based S&P 500 index in the US, and that closed Wednesday at 3,190.
The markets in Japan and South Korea were both up by 2% to 23,125 and 2,196 respectively, while China’s Shanghai Composite index rose 1% to 2,944.
Germany’s DAX index was unchanged in percentage terms at 12,530, while the UK’s FT-SE 100 index drifted back 1% to close the week at 6,329. The pound performed strongly against the dollar, however, and closed the week up 2%, trading at $1.2779.
We have always been optimistic about the UK economy – and the wider world economy – recovering from the current crisis.
As we mentioned above, there was good news this week from the UK technology sector, which has raised £4.2bn in the first five months of the year. Despite the crisis, this is broadly in line with the last two years. Admittedly, some of the deals announced in 2020 will have been negotiated in 2019, but it is still an indicator of the resilience of a sector that will have a major part to play in our economic recovery.
The recovery will see a different economy emerge, but we are in no doubt that entrepreneurs and business owners will solve their problems and challenges. Ultimately, our economy will bounce back from the crisis leaner, fitter and stronger.
Away from the UK, there was another example of the ‘new normal.’ We have written several times about Tesla, and many people reading this update will know someone who owns one of their cars. Very few people will have heard of Nikola who, simply put, are doing for pick-up trucks what Tesla is doing for cars.
Nikola made its stock market debut in the US last week and has seen its shares surge, valuing the company at $31bn (£24.4bn) – which makes it worth more than Ford. How many pick-up trucks has Nikola sold? None. How much revenue has it generated? None. And it doesn’t expect any until next year.
Three weeks ago we wrote this:
When lockdown started there was a sudden dearth of amusing stories. Fortunately, the resilience (and madness) of the human spirit seems to have re-asserted itself…
Well, here we are, nearly three months into lockdown and it has happened. We couldn’t find a single funny story to write about. This was, disappointingly, the week when Elon Musk didn’t have to choose a baby name, when no pubs announced that yes, you could have a drink but only if you were wearing a giant spare tyre, and when none of the UK’s residents went out for their daily walk armed with a three foot sword.
What is the world coming to? Then again, a company that has never sold a single vehicle is valued at more than £24bn. Welcome to the ‘new normal,’ ladies and gentlemen…