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Last Week in the City: US infection rates dominate

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook this week ending 3 July.

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook this week ending 3 July.
Garry white employee

by
Garry White

in Features

03.07.2020

Investors eyed the spread of Covid-19 in the US with concern, as record cases were reported across several states. However, job creation in America following the ending of lockdowns in some states provided some cheer.

The UK is easing lockdown restrictions this weekend, but people have been urged not to get “carried away” and risk spreading the infection. In a sign of the changing world, Elon Musk’s Tesla leapfrogged Toyota to become the most valuable listed carmaker globally.

The FTSE 100 was little changed over the course of the week by mid-session on Friday, but the FTSE 250 added 1.2%.

Market commentary continues below…

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Covid-19

The Covid-19 pandemic is subsiding in Europe but getting worse globally with the number of infections expected to reach 10 million next week and the number of deaths 500,000, the head of the World Health Organisation (WHO) Tedros Adhanom Ghebreyesus said.

The US reported more than 55,000 new Covid-19 cases on Thursday, a new daily global record for the coronavirus pandemic, as infections rose in many states. A surge in coronavirus cases over the past week has led several US state governors to halt plans to ease restrictions after strict lockdowns. Covid-19 cases are rising in 37 out of 50 states.

Japanese officials said that the country will not reintroduce a state of emergency to tackle Covid-19, despite cases in Tokyo rising to a two-month high, driven by the spread of the virus in the capital's night spots.

The death toll in Brazil reached 61,884 and the country now has 1,496,858 confirmed cases of the virus. Populist president Jair Bolsanaro has repeatedly dismissed coronavirus as a media “fantasy” and “trick”.

From 10 July, the UK will end coronavirus quarantines for people arriving in England from more than 50 countries, including Germany, France, Spain and Italy – but not the US. This clears the way for millions of British tourists to take summer holidays without worrying about being quarantined when they return.

The Financial Conduct Authority has proposed extending pandemic relief measures for consumers with car financing contracts or high-cost credit until the end of October. The UK regulator set out options for supporting consumers with motor finance, buy-now-pay-later (BNPL), rent-to-own (RTO) and pawnbroking contracts who are coming to the end of a three-month payment freeze introduced after lockdown in March.

The latest phase in a gradual reopening of the British economy on Saturday 4 July will see pubs in England open for the first time since mid-March, as well as restaurants, museums, hotels and other businesses. The event has been dubbed "Super Saturday" in the press, sparking worries that after months indoors, some people could take risks that will spread Covid-19. Boris Johnson urged Britons not to get “carried away”.

The UK’s first ‘local lockdown’ happened in Leicester. Non-essential shops were shut, and schools closed to most pupils. The tightening of restrictions will last until at least 18 July and apply to the city centre and several suburbs.

After early victories in the east in South Korea, Taiwan, New Zealand and arguably China, the battle against the pandemic has grown longer and tougher as lockdown measured are eased. We look at the implications here.

Economics

The historic slump across British businesses levelled off last month, as some of the economy reopened following an easing of the coronavirus lockdown. The IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI) rose to 47.1 from 29.0 in May, slightly higher than a preliminary reading of 47.0 but still below the ‘50’ threshold for growth.

Chinese services companies reported their strongest growth in a decade. The latest Chinese services PMI, released overnight, found a surge in activity in June. The CSI 300 index of China’s top companies closed at a five-year high following the data.

The US economy created jobs at a record rate in June, as more restaurants and bars reopened. However, 3.5 million Americans were collecting unemployment checks in the middle of the month, and a resurgence in Covid-19 cases suggested the labour market could suffer a setback in July. The news boosted markets on Thursday, but these gains were given back on Friday in Europe when wall street was closed for the Independence Day holiday. We look at the jobs problem here.

Central banks continue to prop-up markets with an unprecedented tsunami of money. We look at the ongoing implications here.

Geopolitics

Hong Kong pro-democracy activists are discussing a plan to create an unofficial parliament-in-exile to preserve democracy and send a message to China that freedom cannot be crushed. China’s President Xi Jinping signed the Hong Kong national security law on Tuesday, putting into effect legislation critics fear will curb the city’s freedoms. The UK offered three million residents of its former colony the right to settle in the UK following the law’s ratification. China strongly condemned Foreign Secretary Dominic Rabb’s offer and said it may take action to prevent people from leaving. Taiwan warned its citizens they could be at risk if they visited Hong Kong.

Garry White argues that the dispute between China and the US is likely to continue for many years as their clash of ideologies changes global trading patterns and supply chains here.

Populism has, so far, had a mixed pandemic. Established parties have seized the opportunity to claim the populists in power were insufficiently attentive to expert advice. We look at populists and how they have dealt with Covid-19 here.

Brexit

UK Prime Minister Boris Johnson said he was more optimistic than EU negotiator Michel Barnier that a post-Brexit trading deal could be struck – but said Britain could leave the bloc without a comprehensive agreement if needed. Earlier in the week, Mr Barnier said that serious divergences remained, and Britain needed to respect the EU's position.

Technology

A consortium involving India's Bharti Global and the UK government was the highest bidder in an auction for the failed satellite company OneWeb. The British group went bankrupt in March while trying to build a spacecraft network to deliver broadband. The government hopes the network could work as a replacement for the loss of the EU's Galileo sat-nav system. Garry White looks at OneWeb and the battle for space infrastructure here.

The UK needs tougher rules to curb the dominance of Alphabet’s Google and Facebook, including powers to break them up, the Competition and Markets Authority (CMA) said. The watchdog said it was concerned that the company’s dominance in digital advertising raised barriers for new competitors. This may be pushing up prices for consumers, the CMA added.

China leapt ahead of the US in its 5G infrastructure technology – and it’s about to do the same in another area of technology that will come to define the way we live. Garry White looks at smart cities here.

The government has signalled it is set to take a tougher line against Chinese telecoms equipment-maker Huawei. A review is underway into how looming US sanctions would affect the UK's continued use of its products. "Given that these sanctions... are extensive, it is likely to have an impact on the viability of Huawei as a provider for the 5G network," Digital Secretary Oliver Dowden said. Garry White argues that the East-West split in technology is starting to become more visible here.

Energy

Crude oil prices are unlikely to return to three-digit levels ever again, according to Citigroup. The idea of oil at $100 or higher, “has far more fantasy than reality at its heart,” the bank’s analysts wrote, adding that over the long term, $45 per barrel of Brent was a far more likely oil price scenario than $60 a barrel. Nevertheless, Brent crude futures rose 3.7% over the week to trade at about $42.50 a barrel by mid-session on Friday.

Autos

A significant milestone in the auto industry was hit this week. Elon Musk’s electric vehicle group Tesla became the world's most valuable listed carmaker, leapfrogging the market value of Japan's Toyota. We look at the issues facing the motor industry here.

Property

UK house prices were 0.1% lower in June than a year ago – the first annual fall in eight years, according to Nationwide.

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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