Weekly Client Update – Thursday 7th May

Hello, and welcome to our latest client update as Europe starts to ease the lockdown and everyone wonders what the ‘new normal’ will look like once the UK returns to work. 

As with the update we wrote just before Easter, this one is coming to you a day early to allow for the VE Day Bank Holiday on Friday. The stock market figures quoted below were therefore correct at close of business in the relevant market on Tuesday, with the commentary written on Wednesday morning and then, as always, revised after the latest Government briefing. 

The Latest News 

This has been a short week, and it has been a week in which the bad news has outweighed the good. Last week brought us the fall in US GDP in the first quarter and this week that has been reflected in company news, with several companies announcing job losses. 

At the moment, these have perhaps been most keenly felt in the aviation industry. With social distancing on flights and health screening before check-in both looking inevitable, air travel suddenly seems a lot less attractive. 

Legendary investor Warren Buffet announced that he was selling all his stock in US airlines, saying he “sees no upside,” and GE announced that it would cut 25% of jobs in its aviation division, amounting to 13,000 jobs. 

Closer to home, Rolls Royce said it could cut up to 8,000 jobs as aircraft manufacturers around the world were forced to scale back production. 

As job losses mounted and stock markets fell, the Independent dubbed last Friday ‘the saddest day we have seen for the global economy.’ 

Fortunately, the world is fighting back. In the UK, ‘Bounce Back’ loans are now available for small businesses, with the participating banks receiving over 100,000 applications on the first day. These loans, which are for amounts between £2,000 and £50,000 and repayable over a six year term, will undoubtedly save many small businesses which might otherwise have failed. 

Looking at the wider economy, trade talks between the UK and the US have started (in parallel with the ongoing Brexit talks), with both sides seemingly determined to reach a free trade agreement in record time. 

The Stock Markets 

As we have commented previously, a week (especially a six day one) is a very short period of time when you are reporting on stock market movements. One piece of bad news can adversely affect markets, and in such a short space of time they don’t have a chance to recover. So it was this week, with worries about US/China tensions over Coronavirus. Throw in the sharp drop in US factory orders, clearly with worse to come, and all the major markets on which we report fell this week, with just one exception. 

It is worth stressing though, that markets like the UK, the US and Germany are all higher than they were two weeks ago. This week’s falls did not wipe out the previous week’s gains. 

The UK’s FTSE 100 index fell by 4% in the week, starting at 6,115 and closing Tuesday at 5,849. Two of the world’s leading emerging markets, India and Brazil, were down by a similar amount. 

Most markets were down by slightly less: the US Dow Jones index, the German DAX index and the markets in Hong Kong and South Korea all fell by 3%. The Dow Jones opened the week at 24,634 and ended it at 23,883. 

The one major market to buck the trend was China’s Shanghai Composite index, which rose 1% in the week to 2,860. 

The pound almost managed to be completely unchanged against the US dollar in the week, starting its trading at $1.2447 and ending it the smallest fraction down at £1.2446. 

Our Thoughts 

As we have noted above, last week brought its fair share of bad news but – and, admittedly, this is only anecdotal evidence – we detect a real willingness to get back to work and a determination to fight back against what has happened. 

As many of our clients know, we stay in very close contact with the industry’s fund managers, the professionals who manage the money our clients have invested. They are going to face some significant challenges as the world returns to the ‘new normal.’ As we have seen with the aviation industry, some sectors of the economy will be permanently changed by Coronavirus. We will stay in regular and close contact with the fund managers as they develop new investment strategies and make sure our clients are always updated. 

Hopefully, by the time we send our next update, on Friday 15th May, there will be news of the easing of lockdown in the UK. The Prime Minister is due to make a statement on Sunday, which will hopefully pave the way for schools and businesses to re-open. However, Scotland, Wales and Northern Ireland do have the power to diverge from what the Westminster Government decides, so who knows when we will see football in Scotland again!!

But for now, we leave you with news of someone who scored a spectacular own goal this week. Elon Musk, founder of US car company Tesla, tweeted that he thought the share price was too high, and promptly wiped $14bn (£11.3bn) off the value of his company. 

And finally, news of something else we must do in lockdown. As if social distancing and making our own face masks were not enough, consumers in the UK and Europe are being told they must eat more steak, chips and cheese during lockdown. There is a surplus due to the closure of restaurants and bars and, well… the food producers say it’s up to you and me. 

The problem is, apparently, especially bad in Belgium where the country’s 5,000 frites stands are all closed. So we’ll leave you there, and just pop over to Brussels to eat some chips. Surely that’s ‘essential travel?’