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Last Week in the City: Concern over rising US infections

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook this week ending 10 July.

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook this week ending 10 July.
Garry white employee

by
Garry White

in Features

10.07.2020

Markets had a relatively calm week, with the Nasdaq composite hitting yet another all-time high, as technology continued to be favoured by investors. However, concerns mounted at the end of the week, as the US reported the biggest-ever, single-day rise in infections of Covid-19 seen in any country since the pandemic began. South America continued to experience a significant rise in infections too. Markets are still, however, supported by central bank actions.

The FTSE 100 was down 1.1% over the course of the week by mid-session on Friday, and the FTSE 250 fell 0.3%.

Charles Stanley’s Investment Strategy Committee met this week – you can read its conclusions here.

After two months of strong gains in risk assets, financial markets ended the second quarter with a much more modest set of returns. Jon Cunliffe, our Chief Investment Officer, reviews June’s market action here.

Market commentary continues below…

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Mini-budget announcements

UK Chancellor Rishi Sunak unveiled measures to help boost the UK economy and save jobs as the country tries to recover from the economic fallout of the Covid-19 pandemic. These included:

Jobs and training: Up to £30bn set aside for boosting the jobs market. This will take the form of a £1,000 job retention bonus for every furloughed worker that is brought back and employed until the end of January 2021. A new £2bn Kickstart Scheme as a key plank of his “Plan for Jobs” that will create government-subsidised jobs for unemployed young people. There was also more cash for apprentices, traineeships and careers advice.

Green investment: The Chancellor announced a £3bn package of green investment to help create thousands of jobs. Some £1bn has been set aside to help make public sector buildings greener.

Help for hospitality: Mr Sunak unveiled a landmark 50% discount for diners (up to £10) to spur demand and a huge VAT cut for the hospitality and tourism sectors.

Housing: The Chancellor announced an emergency stamp duty holiday to help revive the property market.

Covid-19

More than 60,500 new infections were reported across the US on Thursday, setting a one-day record for the daily number of cases reported in any country since the pandemic began. Infections have risen in 41 of America’s 50 states over the last two weeks.

Brazil's President Jair Bolsonaro tested positive for coronavirus. Mr Bolsonaro has repeatedly played down risks of the infection and has opposed lockdowns, which he says hurt the economy. Brazil has the second-highest number of Covid-19 cases and deaths in the world, after the US.

India reported a record 26,506 new coronavirus cases on Friday as authorities re-imposed lockdowns in its most populous state, Maharashtra. India now has the world’s third-largest outbreak of the infection.

Australia will halve the number of citizens allowed to return home from overseas each week, Prime Minister Scott Morrison said, as authorities struggled to contain an outbreak in Melbourne.

Hong Kong's Education Bureau on Friday announced the suspension of all schools from Monday after a sharp rise in locally transmitted cases.

Indonesia reported its biggest single-day rise in coronavirus infections on Thursday, with almost half of the 2,657 new cases detected at a military training centre in West Java.

Economics

The majority of US job losses have fallen heavily on the lower paid and unskilled. A recovery will need people to start spending more. We look at the jobs issue here.

Keeping companies afloat that really should have gone under means money is tied up in unproductive businesses. This comes with a long-term cost. Garry White argues that ‘undead’ zombie companies will eat US productivity here.

The European Union now expects an even greater hit to its output this year from Covid-19. But political wrangling means it is yet to agree on a stimulus package. We look at the issue here.

Geopolitics

The UK government received a report into Huawei that is expected to change its policy over the Chinese group’s role in the UK's 5G networks. Digital Secretary Oliver Dowden said GCHQ's National Cyber Security Centre had delivered its findings and they were examining it. Huawei is being buffeted by a geopolitical war over technology between Washington and Beijing. Garry White looks at the issue here. Garry looks at the significance of 5G infrastructure to this technological race here.

Technology

The Nasdaq Composite index hit yet another all-time high on Thursday, as technology stocks continued to be among the best performers in the recovery.

Short-video app TikTok halted operations in Hong Kong after China imposed a new security law on the city. The law has restricted freedoms in the semi-autonomous territory, raising concerns of official oversight of social media. Facebook, WhatsApp, Twitter, Google and Telegram all said they are "pausing" co-operation with requests for user information from the Hong Kong police.

Energy

The International Energy Agency (IEA) raised its 2020 oil demand forecast slightly – but warned that the spread of Covid-19 posed a risk to the outlook. The IEA raised its forecast to 92.1 million barrels per day (bpd), up 400,000 bpd from its forecast last month, citing a smaller-than-expected second-quarter decline.

Brent crude futures had a relatively quiet time when compared to recent weeks, falling 0.3% since last Friday to trade at about $41.50 a barrel by mid-session on 10 July.

Property

The spread of Covid-19 has forced immediate changes to landlord and tenant behaviour that are bad news for investors – and may induce substantial changes to the use and value of buildings. We look at the clouds building on the outlook for property – and where the bright spots are – here.

Transport

Bus and train operator FirstGroup warned it faces an uncertain future after Covid-19 caused a collapse in passenger numbers. The company issued a “going concern” warning as it unveiled annual losses of more than £150m.

Retail

Landlord Great Portland Estates said it had received only 28% of rent due last month from those in its retail, leisure and hospitality spaces, as the pandemic continued to weigh on their businesses.

Shoppers returned to the UK high street in June, as the Covid-19 lockdown eased, but overall numbers were much lower than normal for the time of year. The monthly report from the British Retail Consortium and market research firm ShopperTrak showed footfall was down 63% in annual terms in June, although this was 19 percentage points above May’s reading.

Online players have been the winners in this crisis. According to the latest Online Retail Index from IMRG and Capgemini, overall online retail sales in June surged 33.9% year-on-year. On a month-on-month basis, June’s growth was 3.5% up on May.

Nevertheless, things remain tough for retailers, as highlighted by a series of redundancies this week. Unlisted chemist chain Boots announced 4,000 job losses and 13,000 jobs are at risk as John Lewis announced 8 department store closures. The UK boss of the US-owned fast-food chain Burger King said it could cut between 5% and 10% of its staff.

Shares in online retailer Boohoo had a roller-coaster week after The Sunday Times published a report alleging that workers in a Leicester factory making clothes for the fast-fashion group were being paid as little as £3.50 an hour. Management launched an independent investigation headed by top barrister and former head of law firm Mishcon de Reya’s white-collar crime unit, Alison Levitt QC. This prompted the shares to move from lows.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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