Economic YoYo’s and Three Armed Noodle Hats

Market Commentary

It seems to be hard for the world to know whether it’s coming or going at the moment! The markets are yo-yoing, the media is all over the place, and who knows where we are with the government guidance. We’ve even had to look back at our last report to know where to start with this Market Commentary.  So to reflect a moment! When we last wrote, Boris Johnson had just come out of hospital and welcomed his newborn son into the world. There was a plethora of bad news as financial institutions seemed to compete with each other over who could make the gloomiest predictions. Yet amongst all the doomsaying, the markets had risen during the month.

As far as May is concerned, we didn’t see quite the same clean sweep as we saw in April. Hong Kong brought us swiftly back to reality – but the other markets we comment on generally made gains. Most countries are also now beginning to ease lockdown measures to varying degrees. Now begins the difficult task of taking significant steps to encourage economic recovery. That it is going to be anything other than easy, was perhaps best characterised by Chancellor Rishi Sunak’s latest media dalliance. Readily admitting that it will be impossible to protect every company and every job was met with surprising disbelief by the more vocal members of the UK populace. Yet so it was that May saw some of the first threatened job losses become a reality. It was also the month where the brewing tensions in Hong Kong reached boiling point at an alarming rate.


The UK continued its attempts to stimulate the economy as the Chancellor extended the furlough scheme to October. Businesses, he stated, will gradually be asked to contribute an increasing amount towards the cost. Further measures were introduced to help the self-employed – but news of people ‘falling through the cracks’ still permeated the news. We are now seeing a shift in focus on getting people back to work. It’s a sluggish endeavour, not least because people are still fearful that nothing has changed since the lockdown was introduced. There is currently still no vaccine or cure. And there is unlikely to be either until 2021. So, a careful balance act of trying to keep the virus in check while stabilising the economy is now the name of the game. As we write, car showrooms, outdoor markets and most nurseries have re-opened. Reception years and Year 6 have also been encouraged back to school. ‘Non-essential’ shops are currently slated to re-open from 15th June, and (for those of us sporting the best of 1980’s hairstyles) hairdresser are hoping to re-open on 4th July.

In other news, May generally got off to a slow start. Make UK forecast a 55% fall in manufacturing output in the second quarter. An unprecedented (there’s that word again!) number of firms issued profit warnings. Then to top it all off, Rolls-Royce announced it would be cutting 8,000 jobs. They weren’t alone, either! EasyJet announced they would be cutting thousands of jobs – and we can only wonder how many more losses we’ll see as the furlough system winds down.  As far as the FTSE-100 index of leading shares went, it increased 3%. The pound was down 2% against the dollar. 

Brexit and Trade 

A year ago, we were longing for something (anything!) to eclipse Brexit in the headlines. It goes to show you should be careful what you wish for. While the headlines around Brexit now take second foot to Covid-19, as far as our Commentary goes, the negotiations for divorce are still very much ongoing. The UK continues to cosy up to new suitors. Most noteworthy are the UK/US trade talks, which have now officially started. City AM has also reported that talks between the UK and Japan are also now on the horizon.   Meanwhile, the usual disputes with the European Union continue. Both sides are growing increasingly weary of the other’s intransigent negotiating stance. Undoubtedly this was the catalyst behind City AM’s mid-month suggestion that Britain ‘is now ramping up preparations for no deal.’  David Frost, the UK’s chief negotiator, stated that the EU’s position would “need to evolve.” It is understood that this was with particular reference to key areas, such as fishing. So it remains to be seen as to whether any deal can be done. Key talks are slated for mid-June between Boris Johnson and the President of the EU Commission. 


We previously lauded the UK economy for ‘only’ contracting by 2% in the first quarter of the year. Now, Germany has achieved a similar feat by contracting just 2.2% in the first three months of the year. Technically, this pushed Germany into recession. But, let’s face it – come the end of the second quarter, all of the world’s economies will be in recession with them. Elsewhere, the Eurozone as a collective saw its economy contract by 3.8% in the first quarter. So, the EU commission didn’t sugarcoat their words when they forecast a ‘deep and uneven recession.’ Its tentative forecast determined that economic activity for 2020 would decrease by 7.5%, before recovery in 2021. 

In other news, there were more grim tales from companies. Renault reported its plans to cut 15,000 jobs worldwide even with the French government’s €8bn rescue package in situ. Across the border, Germany agreed to a €9bn rescue deal for Lufthansa, a move Ryanair’s boss denounced as illegal. Meanwhile, European Commission President Ursula von der Leyen dolled out a much larger rescue package. “This is Europe’s moment,” she said, as she proposed a €750bn rescue package comprising grants and loans for every member state.  However, whether this will be enough for beleaguered economies like Italy’s is yet to be seen. For many, this is simply a case of too little, too late. But on the positive side, it has been enough in the short term to see both Europe’s leading stock markets end the month favourably. The French stock market increased by 3%. But it is the German DAX index that receives the accolade as it rose an astonishing 7%!


What a month it was for the US! It got off to a bad start – and effectively carried that trend on for the rest of May. First, Markit’s Purchasing Manager’s Index for April reported the greatest decline in manufacturing output ever recorded. Then news of Warren Buffet selling all of his shares in US airlines broke; only to be superseded by GE’s announcement of its plans to cut around 16,000 jobs.  The jobless figures are mounting significantly every week (which as w. By the end of May, a staggering near 40m people were claiming unemployment benefits).

As we saw last month, the US government has unleashed an unprecedented fiscal and monetary stimulus. This included passing bills worth around $3tn while the Federal Reserve cut interest rates. Naturally, this will involve an equally unprecedented amount of borrowing. For the second quarter alone, that figure currently stands at a whopping $3tn. To put that into perspective, it is more than five times the previous quarterly record, set at the height of the 2008 financial crisis.  And yet, end on a positive note we must! Thankfully we have one in the form of the Dow Jones index. Seemingly unperturbed by the plethora of bad news, the US market had a good month, rising 4%.

Despite all of the negativity, there is real optimism and confidence in the US that the pandemic will be a time of reinvention. There is a buzz around the prospect of new companies bringing new products to the market. And considering two American astronauts have just joined the International Space Station from SpaceX’s Dragon Endeavour (a commercially made spacecraft), the optimists may well be right.

Far East 

News from the Far East was dominated by the ever-increasing US/China tensions. Perhaps unsurprisingly (?), President Trump was the catalyst for this particular round. In an interview with Fox Business News, he suggested that Chinese companies listed in the US may have to adhere to US accounting rules in the foreseeable future. The US Senate promptly passed a bill to this effect. So, Chinese companies, like Alibaba, may find themselves needing to delist in the US. Then came the US’s announcement of new export controls aimed at limiting Huawei’s access to semiconductor technology. Huawei duly protested, saying the measure would put its ‘very survival’ at risk. By the end May, though, there was a sharp shift of focus to Hong Kong, where China voted to impose a national security law to make ‘subverting the authority’ of China a criminal offence. Even more worryingly, though, the law also allows China to place its own security forces in Hong Kong.  Predictably, the US led global protests. 

Elsewhere in the Far East, China decided to scrap its economic annual growth target. Japan may be wishing it could follow suit given that its economy saw a decline of 3.4% in the first quarter. The country is therefore in recession for the first time since 2015. Considering that factory output was also down by 9.1% in April, the second-quarter figures are likely to make future grim reading too. However, economists remain optimistic that the Japanese economy will pick up again in June so the Nikkei Dow index rose 8%. Elsewhere, the South Korean market climbed 4%. China’s Shanghai Composite index was unchanged in percentage terms, closing May at 2,852. The Hong Kong market, unsurprisingly, fell 7%. 

Emerging Markets 

It is no secret that India’s employments rates are being severely impacted by the current pandemic. By the middle of May, a staggering 120m+ people had lost their jobs in India, and the unemployment rate reached a record high of 27.1%. Despite the government’s $264bn rescue package, the Indian stock market fell 4%.  The bad news was echoed in Brazil, with Economy Minister Paulo Guedes warning that the country could face “economic collapse,” with dangers of “food shortages and social disorder.” President Jair Bolsonaro is opposed to stay-at-home measures. His premise for doing is that a Brazilian lockdown will do unnecessary damage to the Brazilian economy. In May, the stock market sided with the President, rising 9%.  In Russia, the Moscow stock market rose 3%. 

And finally 

We’ll admit that when lockdown began, we thought that our ‘And finally’ section might become redundant. We needn’t have worried, though. We have got through to our latest Market Commentary with the human spirit – and its propensity to do something silly – continuing to prevail

Our hero this month is Tesla boss Elon Musk. He started the month by tweeting that he thought the Tesla share price was too high. This raised more than a few eyebrows… and wiped $14bn off the value of his own company. Only a week later, Musk’s girlfriend, Grimes, gave birth to their first child. The little boy’s name was duly announced to the world: X Æ A-12 (pronounced X-Ash-A12). Of course! What else?  ‘Hang on a minute!’ said California’s legislators. ‘You can’t use numerals in a child’s name.’ So, the child’s name has now been changed to X Æ A-Xii. Much more conventional, don’t you think? We wonder what their pets are called…

As we have seen above, there is an almost global desire for the hospitality industry to restart. But what to do about social distancing is proving troublesome for many. Not so for the managers at Café & Konditorei Rothe in Schwerin, northeast Germany! They solved the problem beautifully. How so?

Well, they politely request that all customers wear swimming pool ‘noodle hats’ to ensure they keep their 2m distance. Essentially, you can have a coffee but only if you drink it wearing a hat with three large foam ‘arms’ on it. These are now on the list for essential office requirements, along with, of course, our PPE. And on that note, we shall draw this Market Commentary to a close. So, until next time, stay safe – and remember, only go out if you have your noodle hat in situ!

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