This week has been a baffling news week for many of us. In America, the Dow Jones Index rose through the first part of the week, whilst the Nasdaq index (which represents a much wider spread of traded companies in the US) hit an all-time high – signalling a bull market.
How can this be? I hear you ask. With widespread looting, violence and unrest; how is this countries stock market blithely pushing on ahead?
The answer is that markets don’t always react to the news stories we are concerned about as humans. The markets in the US enjoyed such a good start to the week because ‘experts’ had predicted they would lose some nine million jobs during the month of May. Numbers came out this week to show that actually the US added some two and a half million jobs to their economy.
We should remember that around 20.7 million jobs were lost in the US during the month of April. Recapturing 2.5 million is hardly a victory, but it does show a turning point.
The consumer savings rate in the US also hit an all-time high in May. This data further buoyed markets upon its release this week. It supports our view that ‘pent up demand’ will hit the US economy like a wall of money once things reopen in earnest.
However, the leader of the Federal Reserve (US Central Bank) came out and predicted a poor US outlook on Wednesday evening. This changed everything, and a market that wasn’t a bit concerned by rioting and looting plummeted on one mans’ comment.
In the UK, the situation concerns me. We appear to be a country with no collective purpose or agreement. If we were a business, we would be in real danger of being taken out by a competitor.
The figures for the UK economy do not look reassuring and markets now believe that the governments furlough scheme is only masking reality that huge numbers of jobs could be lost in the coming weeks.
The failure of the government to reopen all schools before September is a hammer blow to the economy and society. Despite their shortcomings during this crisis, I believe that I echo many of our clients’ sympathy for a government that finds itself at the mercy of Unions, Protestors and Devolved Regions alike.
I have had many conversations with my clients this week who find themselves completely stunned at our countries apparent lack of appreciation for the interconnectivity of all things. Everything is linked.
Add to this the fact that we only have three weeks left to agree an EU trade deal or request an extension (I won’t use the dreaded ‘B’ word!) and I have to be honest in now saying that I worry for the UK economy and can see more of a W shaped UK market recovery.
The UK’s FTSE 100 is down over 6% on the week at the point of writing, whilst the FTSE 250 (which offers a better indication of UK companies health) has fallen around 8%.
We believe that a further fiscal stimulus package may come from Mr Sunak next month. In the meantime, there is growing traction for reducing the social distancing gap to one metre which could be a game changer for many businesses. Clearly something needs to happen swiftly – to help the UK economy avert a much deeper recession.
Europe seems to have had a better week ‘news-wise’, with the European Central Bank increasing its Pandemic Emergency Liquidity Programme by a further 600 billion euros and promising continued ECB intervention until at least June of next year.
Germany agreed its own massive stimulus package of 130 billion euros to be spent on its battery car industry, 5G Networks and Railways. This was 30% greater than even the highest estimate and shows real promise for a sharp recovery.
The peoples’ Bank of China also leapt into action, buying up some 40% of small business loans from local banks. China is now showing modest but sustained signs of recovery within its new orders, construction and services sectors. The US are also satisfied that China is holding up its end of the trade deal bargain and violent protests in Hong Kong have gone largely unreported ….. for now.
It seems that globalisation is really starting to try and unwind itself as each country turns inward to address its own economic and societal successes or failures.
My parting warning to all of our clients this week is about the horrible business of hacking. With so many more of us doing just about everything via a computer – it is no surprise that the hackers are having a field day.
Please remember not to click on any link or attachment that you are not fully expecting and don’t trust any unsolicited phone call from people saying they are from an organisation such as your bank, phone provider, Amazon, World Health Organisation or even NHS contact tracing! Be very careful about the data you give out and never allow access to your computer or bank details.
I know that many of our clients are now incredibly fatigued by the news and lockdown rules – but don’t lose heart. The rates of infections and sad deaths in the UK are falling impressively. Markets are not as wobbled by second spike’s as the media would have us believe and companies in the UK are already prepared for a second spike when it probably comes. We are finding a way through this and we should never overlook human ingenuity and determination to turn things around.
Our client portfolios are in far better shape than they were a couple of months ago, and we are very confident in the way that they are positioned to deliver positive growth over time.
The beauty of our business, is that we can invest wherever the going is good. We don’t have to stay tied to one particular sector or country. This is what has kept our little firm and our clients in great shape over the years.
As always, I am here for you 100%. I have rattled around in this building now for 13 weeks and I really need a haircut! However, I am going nowhere – I am with you all the way.
Until next week. Stay safe, watch out for those hackers and here’s to a week of better news for the UK.
Darren
