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Last Week in the City: Optimism despite second-wave fears

Garry White, Chief Investment Commentator, provides a round-up of the market moves and the global investing outlook this week ending 19 June.

Garry White, Chief Investment Commentator, provides a round-up of the market moves and the global investing outlook this week ending 19 June.
Garry white employee

by
Garry White

19.06.2020

Fears of a resurgence of the Covid-19 outbreak led to some choppy trading sessions this week, but a strong US retail sales report for May – coupled with indications of additional stimulus by central banks ahead – supported equity markets. US technology shares continue to be in favour as lockdown measures result in more people using online services.

The FTSE 100 rose 4% over the course of the week by mid-session on Friday, with the FTSE 250 rising 3.3%. However, the UK indices did not recover all the losses seen in the previous week.

America has the most important stock market right now, but it’s important not to be too US-centric in your world view. We explain why here.

Traditionally, investors believed that ‘buy and hold' strategies always worked – as stock markets always rose over the longer term. We explain why market timing is now becoming increasingly important here.

Market commentary continues below…

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Listening to our clients: At Charles Stanley, we are extremely pleased that this year’s private client survey yielded another set of incredible results. Discover more here.

What’s the point in saving? If we can understand what you need to save for, then the tax tail doesn’t wag the planning dog. Discover the benefits of financial planning here.

Charities: We look at lessons from previous market falls here.

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Charles Stanley Radio

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Spotlight Session: Active v Passive: Strengths and weaknesses of the investment styles in a market crisis. Listen to the debate that injects a degree of nuance – this is not a binary choice – here.  

The radio page with all previous recordings can be found here.

Covid-19

Parts of Beijing re-imposed lockdown measures after a cluster of locally transmitted Covid-19 cases emerged nearly two months after the Chinese capital appeared to have controlled the infection. The outbreak was linked to a major wholesale food market, with China blaming a European strain of the virus that was contained in frozen food imports. Beijing had previously gone 55 days in which the only new infections were citizens returning from other countries.

In the US, Arizona, Florida, California, South Carolina and Texas all reported record-high single-day increases in coronavirus cases on Thursday, after easing lockdown measures to restart their economies. However, some have argued that the spike has been caused – at least in part – by states ramping up testing for the virus. However, hospitalisations have also increased.

The UK’s chief medical officers lowered the Covid-19 threat level one notch to "epidemic is in general circulation" from "transmission is high or rising exponentially". The Joint Biosecurity Centre recommended that the alert level should move to level 3 from level 4. "There has been a steady decrease in cases we have seen in all four nations, and this continues," the chief medical officers of England, Wales, Scotland and Northern Ireland said. "It does not mean that the pandemic is over. The virus is still in general circulation, and localised outbreaks are likely to occur."

Indian officials also re-imposed a lockdown in the southern city of Chennai, the country’s sixth-largest city, and three neighbouring districts after a spike in infections. Also seeing an increase in the number of people being infected were Argentina, Brazil, Croatia and Iran.

The closures and restricted working brought on by governments combating the pandemic are accelerating several business trends. We look at some of these here.

The UK’s Competition and Markets Authority launched an investigation into four pharmacies and convenience stores suspected of charging “excessive and unfair prices” for hand sanitiser products during the Covid-19 pandemic. The names of the businesses under investigation were not released and the competition watchdog stressed that the investigation was in its early stages and it was not yet clear whether rules had been breached.

Economics

The number of applications for unemployment benefits in the US last week was 1.51 million, falling less than expected. Approximately 40 million Americans have now lost their jobs so far in the pandemic.

The Bank of England has announced a new £100bn quantitative easing stimulus package. Threadneedle Street’s nine-member monetary policy committee (MPC) voted eight to one to boost the amount of money being pumped into the economy, despite evidence that easing the lockdown had prompted a more rapid pickup in spending than the Bank envisaged. The MPC said some of the increase in activity after the Covid-19 shutdown was taking place in the current quarter, rather than in the July to September period. It now expected the economy to contract by 20% in the first half of the year rather than 27%.

UK public borrowing exceeded 100% of GDP in May, the UK Office for National Statistics ONS has revealed. This is the first time this has happened since 1963. The UK ended May with public sector borrowing at 100.9% of its economic output.

British retail sales volumes jumped by a record 12% in May after an unprecedented 18% slump in April. The rise was caused by a significant increase in DIY purchases as Britons improved their homes and gardens under lockdown. The rise was at the top end of economists' forecasts, but still left sales 13.1% down on a year earlier.

European Union (EU) leaders began the process of approving an unprecedented stimulus package for their virus-ravaged economies on Friday but were still divided over its final size and terms. A final agreement on the package is not expected until the next leaders’ summit in July.

The green and digital revolutions will continue to play an important part in any views of the future and forecasts of economic and business prospects. But the two are very different. We explain why here.

Geopolitics

Democratic presidential nominee Joe Biden this week called on President Trump to “wake up,” accusing him of waving a “white flag and retreating” from the fight against Covid-19 as it killed an increasing number of Americans. As the November election looms, we ask if the election is Joe Biden’s to lose?

Donald Trump said the US could pursue a “complete decoupling from China” in his most forceful statement yet in the worsening dispute with Beijing. In a tweet sent on Thursday, Mr Trump rejected comments made a day earlier by US Trade Representative Robert Lighthizer, who said a full decoupling of the world’s two biggest economies was not “a reasonable policy option”. Garry White looks at the worsening tension and the chance of an economic split on East-West lines here. This followed the trump administration’s recent moves to halt US investment in Chinese companies, which Garry White examines here.

China freed ten Indian soldiers detained following a high-altitude border clash in the Himalayas which left at least 20 Indian soldiers dead. This followed intense talks between the two countries in a bid to de-escalate tensions after the battle on Monday, in which scores of troops from the two sides fought with nail-studded batons and hurled rocks at each other. This was the most serious fighting in more than 50 years along their contested Himalayas border, over which the two counties fought a war in 1962.

Brexit

British negotiators warned the EU that it would be difficult to conclude a Brexit free trade deal by the end of the year unless a broad agreement had been reached by October. The UK formally left the bloc at end of January, but talks have so far made little progress on agreeing on a new trade deal by the time the transition period ends on 31 December. Talks have faltered on EU fishing access to British waters, British compliance with EU rules aimed at a level playing field and the customs arrangements for Northern Ireland.

Fraud investigation of the week – Wirecard

Wirecard, a member of the German blue-chip Dax index, is fighting for its survival after admitting €1.9bn has gone missing from its books. The payments company postponed the publication of its financial results for the fourth time this year because EY, its auditor, refused to sign off on the accounts. The missing sum represents a quarter of Wirecard's balance sheet. Its billionaire chief executive Markus Braun said: "It is currently unclear whether fraudulent transactions to the detriment of Wirecard have occurred. Wirecard will file a complaint against unknown persons."

Technology

The US said it had walked away from the negotiating table on a global digital services tax (DST), as countries try to find a solution to the tax issues of large, global technology companies such as Facebook, Amazon and Alphabet’s Google. US Trade Representative Robert Lighthizer told Congress the US had abandoned efforts to find a multilateral solution in talks overseen by the Organisation for Economic Cooperation and Development (OECD) because other nations had ganged up to "screw America". This prompted UK chancellor Rishi Sunak and finance ministers in France, Italy and Spain to write to Mr Lighthizer to tell tech giants, they need "to pay their fair share of tax". The Covid-19 crisis has made tech companies "more powerful and more profitable", the letter said.

A “sophisticated state-based actor” has been attempting to hack a wide range of Australian organisations for months and had stepped up its efforts recently, Prime Minister Scott Morrison said on Friday. The attacks have targeted all levels of the government, political organisations, essential service providers and operators of other critical infrastructure, Mr Morrison said at a media briefing in Canberra. We think that cybersecurity is going to be a significant growth area in a post-pandemic world. Garry White explains why here.

Energy

Oil prices rose after Opec producers and allies promised to stick to previously-agreed supply cuts and signs that crude demand was rising – albeit slowly – in economies that were easing lockdown measures. Brent crude prices rose almost 7% over the week by mid-session on Friday to trade at about $42.50 a barrel at mid-session on Friday.

Supermarkets

The Covid-19 crisis has halted the rise of the German discount supermarkets, as shoppers turned to online services to get food delivered and Aldi and Lidl do not have a delivery offering. This has prompted speculation that they will accelerate their push into home delivery, taking on Ocado, Tesco, J Sainsbury and Wm Morrison. The discounters have previously said that the high cost of delivering fresh food makes it incompatible with a business model reliant on low prices and minimal service. It appears the pandemic may have changed all that.

Travel

Short-haul airline easyJet’s first flight in 11 weeks took off on Monday morning, with a flight from London Gatwick to Glasgow. The carrier said it would operate more than 300 flights this week, mainly domestic departures from eight UK airports, and a total of 22 within the EU. This represents a fraction of its previous schedules before Covid-19 grounded most flying in late March. Ryanair plans to restart 40 per cent of its flights next month.

Cruise ship operator Carnival suffered losses of $4.4bn in three months, as the Covid-19 pandemic hit the travel sector hard. Revenues dropped to $700m from $4.8bn for the same March-May period in 2019, as bookings dried up and the corporation’s cruise lines suspended sailings after severe outbreaks onboard its ships. The company also said it planned to sell six of its cruise ships, which usually cost between $500m and $1bn, but the disposals will be into a distressed market.

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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