UK Economy May Look Different Post Covid-19:
Last week we continued to sit in the coronavirus holding pattern that’s dominated most of the summer. Lower infection rates have seen lockdown rules relaxed. But this has been followed by spikes in infection that have required a step back. So far these have been localised, and hopefully improved testing and tracing will keep it that way. This points to a longer-term problem that some industries just aren’t very Covid compatible. Bars and restaurants, for example, will be under sustained pressure until the virus is no longer a threat. And who knows how long that will be! So, how the UK economy will look post Covid-19 is still anyone’s guess.
The governor of the Bank of England hinted at this problem during the past week too. He warned against locking the economy into its precoronavirus state. Eventually the furlough scheme will need to give way to the reality that some jobs are never coming back. For now, Government support is preventing high unemployment from further damaging the economy. We hope this support remains a while longer, even though it needs to end to allow the economy to adapt.
US: Unemployment Remains High as Coronavirus Recovery Stalls:
Persistently high job losses are being matched by slower new job creation. The monthly US non-farms payrolls report shows 1.8 million new jobs were created in July. But this is a big drop from 4.8 million in June. Concern about unemployment and the relative strength of the US economic recovery has had a substantial impact. Last week saw the yield on US 10-year Treasuries hit a new all-time low. And that came even as the S&P 500 continued its rise.
UK Economy: Sterling Hits Five Month High as BOE Presents Positive View:
A relatively positive view on the UK economy and weak US dollar has seen sterling rise to its highest value since early March. Last Thursday sterling hit $1.31. It also rose against the euro after the Bank of England concluded its Monetary Policy Meeting. The bank kept interest rates unchanged at 0.1 per cent and maintained the current size of its bond buying programme. It said it does not expect GDP to reach precoronavirus levels until the end of 2021. Robust consumer spending is expected to drive a faster recovery. But the central forecast is for GDP in 2020 to be 5 per cent below 2019 levels. The bank confirmed negative interest rates are an option in its policy toolbox. However, it is not something it is actively considering.
Stronger sterling has weighed on UK equity markets recently. Oil companies and miners have seen their share values fall as overseas revenues are reduced in value by a stronger pound.
China: Tech Sell-off After US Moves to Ban TikTok and WeChat:
Donald Trump sparked a sell-off in Chinese technology companies last week. This was fuelled by his announcement of a US-wide ban on Chinese social media platforms TikTok and WeChat. The US president signed an executive order which will force US companies to end all transactions with them within 45 days. TikTok has been under attack from Trump for weeks. Microsoft is currently in talks to buy it from owner Bytedance. WeChat is a social media and payments platform owned by Chinese tech giant Tencent Holdings. It currently generates very little revenue in the US but a wider ban on dealing with Tencent could be damaging.
Tencent has been one of the strongest performers in the Hang Seng index this year. But its shares closed last week down 5 per cent. Bytedance is a privately held company but Trump’s attack caused a wider sell-off in Chinese technology companies. Alibaba and JD.com also saw their share values plunge in the last trading session of the week.