Hello, and welcome once again to our weekly client update. It was a week overshadowed by the row over Dominic Cummings, the Prime Minister’s special adviser, and his trip to County Durham during lockdown. 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 and the news that all ‘non-essential’ shops in the UK will be open by the middle of June, although the timing for shops reopening over the four countries of the UK will vary. We will have to wait rather longer to eat out or have our hair cut, but on Thursday evening the Prime Minister announced that from Monday up to six people can meet outside (eight in Scotland!), providing those from different households observe social distancing.
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.
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.
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 with the usual mixture 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…
We are, though, heartened by the determined efforts 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 see a recovery. We are in no doubt of that.
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 old adage – if it seems too good to be true, it is too good to be true – has never been more relevant.
And now on to the baby names section of the update.
Two weeks ago, we brought you the news that Tesla boss Elon Musk and his partner, the Canadian singer, Grimes, had christened their new son X Æ A-12 (pronounced X-Ash-A12).
Subsequently it emerged that in California you cannot give a child a name containing a number – presumably so you can tell which is your child’s name and which is your password – so the little chap has been renamed. Welcome to the world, X Æ A-Xii
Also unsuccessful, but on a far more prosaic scale, were two burglars who broke into the Wetherspoon’s pub at Liverpool Lime Street station. Breaking into a pub during lockdown probably wasn’t the most sensible idea and, having tripped the alarm, the pair were duly arrested – with just three packets of peanuts stashed in their pockets.
Finally, many of us have bitten the bullet and cleared out our wardrobes during lockdown – so much so that charity shops are fearing a “deluge of donations” when they re-open. Robin Osterley, chief executive of the Charity Retail Association, has urged people to be ‘thoughtful’ about what they donate.