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Last Week in the City

Last Week in the City: Two 2-trillion milestones

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook this week ending 21 August.

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook this week ending 21 August.
Garry white employee

by
Garry White

in Last Week in the City

21.08.2020

The cost of responding to the pandemic means that the UK’s national debt surged past £2 trillion for the first time ever in July. Meanwhile, Apple became the first $2-trillion-market-cap company in the US.

The FTSE 100 lost 1.3% over the course of the week by mid-session on Friday as the dollar fell. Weakness in the US currency hits the earning of large companies listed in the blue-chip index, as many issues result in sterling. The FTSE 250 was down 1.2% over the same period.

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

Vulnerability is undergoing a fundamental reassessment.  Who is vulnerable and why will it be expanded and redefined appropriately for our times? We take a look at social healing and the inspiration of women entrepreneurs in Renaissance Italy here.

Charles Stanley Radio

Listen to our Research team and Investment Managers discuss hot market topics.

Podcast 1: Globalisation: The end of the party?

Whilst the last century was defined by globalisation through global supply chains and cheaper trade, Garry White & Will Dobbs explore how both the Covid-19 pandemic and Brexit have and will affect globalisation.

Podcast 2: The Paradox of Inflation

In this episode, we are joined by Investment Managers from our Edinburgh office to discuss the mythical beast of inflation.

Podcasts 3-6: Harlequins Mindfulness Series

In partnership with Harlequin F.C., Luke Doherty, the team’s mindfulness coach, talks to us about the importance of mindfulness in both our professional and personal lives. Discover what he had to say.

Visit our radio page for more episodes.

Covid-19

The latest UK government statistics showed 12 places where coronavirus cases are rising fastest in England, up to August 16. These areas may potentially be required to enter local lockdowns if they have not already done so: Birmingham; Northampton; Manchester; Salford; Bury; Barnsley; Stoke-on-Trent; Oadby; Wigan; Caven; Coventry; and Richmond-upon-Thames.

The Americas remain the centre of the outbreak. The number of reported Covid-19 deaths in Latin America passed 250,000 this week. The grim milestone was passed as the region has reported more than 3,000 deaths a day. Caseloads continue to rise in Peru, Colombia and Argentina.

Health authorities in China's capital Beijing have removed a requirement for people to wear masks outdoors, further relaxing rules aimed at preventing the spread of Covid-19 after the city reported 13 consecutive days without new cases.

Two cities in China have found traces of the new coronavirus in cargoes of imported frozen food, local authorities said on Thursday, although the World Health Organization downplayed the risk of the virus entering the food chain.

Economics

The UK’s national debt surged past £2 trillion for the first time in July, as Chancellor Rishi Sunak warned Covid-19 was putting the public finances “under significant strain”. The Government borrowed another £26.7bn last month, while tax revenues plunged because of the recession and deferred payments.

UK private sector companies reported a sharp and accelerated increase in business activity during August, with both the manufacturing and service sectors continuing to experience a recovery in customer demand, according to IHS Markit in its purchasing manager index (PMI) surveys. "There were encouraging signs that customer-facing service providers have started to catch up with the rebound seen earlier this summer across the wider economy, with easing lockdown measures, staycations and the Eat Out to Help Out scheme all reported as factors supporting growth in August,” Tim Moore, Economics Director at IHS Markit, said. PMIs from other countries showed a plateauing of activity after the bounce from lows.

The minutes of the most recent Federal Reserve meeting took a cautious tone. They showed staff told central bank officials in late July that they were lowering their estimate for economic growth over the second half of the year. At the latest meeting on July 28-29, they expected the rate of recovery in gross domestic product and the pace of declines in the unemployment rate to be “somewhat less robust than in the previous forecast.” It blamed the slowdown on the increasing spread of the Covid-19 since mid-June and the slowing of state re-openings of businesses.

The major issues today are how fast the recovery will be, how widespread will it be, and how much permanent damage will remain. We take a look at the role of central banks here.

Geopolitics

In a move described as a “lethal blow” to Chinese 5G technology champion Huawei, the US commerce department announced fresh sanctions that restrict any foreign semiconductor company from selling chips developed or produced using US software or technology to Huawei – unless Washington grants them a licence. This was, in effect, closing a loophole from its previous set of sanctions introduced in May, that aimed to stop contract chip makers manufacturing chips for Huawei. Under the new rules, companies will need licences to supply the Chinese company with all components, not just specially designed pieces of equipment. It also adds 38 names linked to Huawei to a trade blacklist. “Huawei has continuously tried to evade” restrictions imposed in May, Mike Pompeo, the US secretary of state, said. Garry White looks at how the US moves are creating a ‘Splinternet’ here.

Brexit

A post-Brexit trade deal between the UK and the EU "seems unlikely" at this stage, Michel Barnier said. The EU’s head negotiator said he was "disappointed" and "concerned". His UK counterpart David Frost spoke of "little progress", amid differences on fisheries policy and state aid rules.

Technology

US news outlets have asked Apple to reduce the cut it takes when subscriptions are taken out on its app store. Alphabet’s Google also clashed with an Australian watchdog that wants it to pay more for the news content it uses. As online companies like Apple and Google have grown, many news providers are struggling to survive. Digital Content Next (DCN) - a trade body which represents the New York Times, the Washington Post and the Wall Street Journal – wrote to Apple chief executive Tim Cook on Thursday. The major US publishers are asking for better terms when people take out subscriptions to their news platforms via Apple’s app store. This follows recent moves by Fornite owner Epic Games to try and get Apple to reduce the cut it gets from sales of the highly popular game from the app store, which led to its removal.

Energy

Although Brent crude futures fell 0.9% over the week to trade at about $44.40 a barrel, prices still traded near a five-month high. An easing of lockdowns aided a slow recovery in fuel demand, and major crude producers are limiting supply.

On both sides of the Atlantic, there is a concerted attempt to get people to switch to electric vehicles and heating systems, undermining the longer-term demand prospects for fossil fuels. We look at the oil-market recovery and the state of the Middle East here.

Mining and commodities

The strength of the Chinese demand recovery that is flowing from Beijing's stimulus package and the weakening dollar helped send copper traded in London to a two-year high and iron ore prices to a 6.5 year high. Others have said the demand surge is down to stockpiling and speculation. Gold prices traded flat.

Retail

There was some good news for the retail sector, despite the troubles faced by brick-and-mortar operators. UK retail sales volumes rose a better-than-expected 3.6% in July and are now above pre-pandemic levels. Data from the Office for National Statistics (ONS) showed that sales rose 2% excluding fuel, compared with a forecast of 0.2% by economists, and a 13.9% bounce in sales in June. Including fuel, sales rose 3.6%, against an estimate of 2%, and are 3% above pre-pandemic levels recorded in February. Online retail sales fell by 7% in July when compared with June, but the strong growth experienced over the pandemic has meant that sales are still 50.4% higher than February’s pre-pandemic levels, the ONS said.

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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