Marmite! You’ll Love it, or Hate it:
Looking back to the start of June, it’s hard to believe that it’s already been a month. Time flies when you’re having fun, but here we are! Time for July’s market commentary already!
It’s fair to say that June started optimistically with the Space X astronauts safely reaching the International Space Station. Continuing with an even more upbeat note, Boris Johnson then launched a ‘new deal’ for Britain. “This is the moment to be ambitious,” he declared. So just as well that the stock markets we cover in this commentary appeared to agree. With only one exception, all of them made gains throughout June! Surprisingly, these gains also came despite a month peppered with plenty of worrying news.
The Chinese government passed the new Hong Kong security law, sparking an escalation in diplomatic tension. It is fair to say June was a month where China managed to just about fall out with everyone. Meanwhile, the Coronavirus pandemic continued to rage. Not only has the aviation industry suffered its worst year on record, but both manufacturers and airlines posted job losses. And then amidst hopes inspired by the relaxation of Covid-19 measures, the UK saw Leicester put back on lockdown. The International Monetary Fund reported that $10tn had been spent tackling the pandemic so far. Obviously, we need to remember that it hasn’t been spent so much as ‘borrowed.’ So, worryingly, the UK has reached a level of debt it hasn’t seen for over 50 years.
We can usually rely on ourselves for a spot of bad news. And July’s market commentary certainly won’t disappoint! There was plenty of bad news even as the government began to ease lockdown restrictions. It was however balanced by an equal amount of good news. So, after all that has been and passed, there is finally some light at the end of the tunnel! To get the gloomier news over and done with first, we first need to look to the high street…
Figures from May confirmed what we already suspected. The UK high street had a tough time during lockdown. Online measures put in place to offset the damage to the high street largely failed, with a fall in total sales broaching 5.9% down on prior year. Even more tellingly, the UK’s retailers paid just 13.8% of their rent for the quarter. This meant that rent receipts in the second quarter fell even lower than the 20% recorded in the first. To translate this monetarily, it meant that around £2.15bn of commercial rent went unpaid for the June quarter!
Inevitably, the bad news stretched to the jobs front. The UK’s furlough scheme was covering nearly 9m workers by the middle of the month alone. As there has been a steady flow of companies making job cuts ever since, it’s likely that the furlough number will be ever on the rise until that lifeline is withdrawn.
Now for the good news!
We promised good news for July’s market commentary, and we never fail to deliver! The Prime Minister announced a £5bn ‘new deal’ centring on jobs and infrastructure, to include £900m for ‘shovel ready’ projects this year and next. So now, we are all poised and waiting for a financial statement from the Chancellor. Current expectations suggest that VAT may be reduced for a limited time in a bid to stimulate spending. As, for the first time since 1963, UK debt now exceeds 100% of GDP, investment, innovation and spending power are being hailed as way forward for economic recovery.
One of our latest blogs saw us surmise what letter shape our economist friends would say our recovery will take. We began with the letter V! And this is exactly what economist Andy Haldane believes will be the case, as he suggests recovery has come ‘sooner and faster’ than expected. Adding to the good news, Toyota has chosen the UK as its export hub for the new hybrid the firm is currently working on. Also, the European Space Agency has chosen Leicester for its new space tech incubation centre. Both, no doubt, will come as a boost to the UK jobs market.
So, when all was said and done at the end of June, how did the stats measure up? Well, the FTSE 100 saw a modest rise of 2%. The pound went unchanged in percentage terms against the dollar.
The Brexit ‘negotiations’ (if we can call them that) continue. In June, they can be summed up quite neatly in the same three words EU chief negotiator Michel Barnier used after the first round of talks: “no significant progress.” Boris Johnson is adamant he will “fix the unfair withdrawal agreement.” Meanwhile, Barnier is resolute that the UK cannot ‘cherry-pick’ in the negotiations. But amidst the ongoing soundbites, 30th June came and went mostly unnoticed. This was the last date on which the UK could request an extension to the transition period. So, international law now decrees that we will indeed leave the EU on 31st December this year come what may.
Europe had a relatively quiet month. As expected, the European Central Bank sharply cut its growth forecast for 2020. It now expects the Eurozone economy to decline by 8.7%– against the 0.8% growth forecast in March. That being said, it did, however, raise its growth projections for the next two years. Its current forecast indicates a growth of 5.2% in 2021 and 3.3% in 2022.
The European Central Bank continued to try to boost the Eurozone economies. Announcing plans to increase its bond-buying programme by €600bn to €1.35tn, it also extended the programme by six months until June 2021. Europe’s dose of bad news for July’s market commentary comes only in the shape of 15,000 job cuts reported by Airbus. Although 1,700 of these will be in the UK, the majority of the cuts are expected to be in Germany and Spain. Despite this, June was a good month for the German DAX index, which rose by 6%. Meanwhile, the French stock market also rose 5%.
At the start of the month, June saw around 43m Americans claiming unemployment benefit. But there was fresh optimism that this number would be short-lived. Some 2.5m jobs added to the market in May on the back of lockdown measures being relaxed. Yet, by the middle of the month, a further 1.5m people filed for unemployment benefit. So, experts have been quick to voice expectations that the US employment rate will fall to around 9% by the end of the year.
The US’s economy now officially joins every other major economy in recession. The National Bureau of Economic Research made the formal announcement in early June, stating that economic activity had steadily fallen since February’s ‘clear and well-defined peak.’ The Federal Reserve cautioned US banks that they ‘needed to stay prudent.’ Their stark warning reminded them that they could incur losses of up to $700bn should the pandemic lead to a severe downturn. Retailer Gap promptly emphasized the point by posting a staggering $932m loss for the three months to May, compared to a $227m profit for the same period last year. Despite this, the Dow Jones index rose 2%. From next month, we will also report on the more broadly-based S&P 500 index, which closed June at 3,100.
Where to start with China? The dispute with different countries just kept rolling in as the month progressed. There were disputes with both India and Australia. Then, the Chinese government decided to pass the controversial Hong Kong Security law sparking tension with the UK and escalating the existing ones with the US. Meanwhile, Chinese telecoms giant Huawei continues to sit precariously as piggy-in-the-middle. The US Defence Department claimed it one of 20 top Chinese firms backed by the military.
In the UK, the government is now seriously considering banning the use of Huawei’s equipment in the country’s 5G network. HSBC, no doubt will now be worried about reprisals in China if the UK proceeds to take action against Huawei. It won’t have gone unnoticed that, along with Standard Chartered, they publicly backed the Hong Kong security law at the centre of the controversy.
China’s Shanghai Composite index increased 5% in June. Hong Kong climbed even higher and rose 6%. The South Korean market was up 4%, and Japan’s Nikkei Dow index rose 2%. To top off a stellar month for China, the last day of the month brought the news of a new flu virus in the country. Found in pigs, an excited scientist reported it ‘has the potential to become another global pandemic.’ Oh, joy!
The big news in the Emerging Markets section of July’s market commentary undoubtedly goes to the escalating tension between India and China. June saw clashes in a disputed Himalayan border region that resulted in 20 Indian troops being killed. India, naturally retaliated by banning 59 Chinese apps, including TikTok. According to the Indian government, such apps posed “a threat to the sovereignty and security” of the country. Australia might well have agreed. Prime Minister Scott Morrison stated the country had been the victim of a “sophisticated state-based cyber hack.” Rightly or wrongly, many were quick to point the finger at China for the breach.
Brazil came in for its fair share of gloom in June. It is now the second country to officially reach 1m cases of Covid-19. Experts fear it could ultimately be the country worst hit by the pandemic. Despite the tensions, the emerging markets figures faired relatively well in June. The Indian stock market increased 8%. Brazil rose 9%. But Russia had a subdued month and increased just eight points to 2,743.
Lockdown has provided some real gems for the ‘And finally…’ section of our commentaries. Men running marathons in their living rooms, others going out for daily exercise carrying a three-foot sword… what joys could our July’s market commentary have to offer? But with lockdown easing in the UK and across Europe, there are worrying signs of sanity being restored!
This, of course, assumes that your definition of sanity is queueing for four hours to get into Ikea (and probably even longer if you wanted to get out!). As the Warrington store re-opened shoppers began arriving at 5am(!!!) for a 9 am opening. And we haven’t even gone there on the people camping overnight to get a spot on a rammed Bournemouth beach! To be fair to people though, they may merely have been trying to escape their other halves.
Lockdown has – unsurprisingly(?) – brought a surge in demand for rental property as many couples decided they didn’t want to be locked down together anymore. And if you were a Marmite lover the month got even worse. Surging demand for brewer’s yeast during lockdown meant that manufacturers Unilever were only able to produce 250g jars. So, now Marmite has taken the place of loo roll as the nations most hunted item.
“I need Marmite like oxygen, really need more 400g squeezy jars,” tweeted a desperate Tim as he frantically searched for the prized commodity. We can only hope he found it! And on that note, we’ll bring this month’s market commentary to a close.
So, until next month’s gripping instalment, keep well, stay safe and remember we’re here if you need us!