Hello and welcome to our latest client update, at the end of a week which finally saw the vast majority of shops in the UK open again. The Government promised to take a ‘fresh look’ at the 2m social distancing rule, confirmed that there will be no extension to the transition period with the EU and started trade talks with Australia, promising a deal “within months.” 

As usual, the stock market figures quoted were correct at close of business in the relevant market on Wednesday, while the commentary was written on Thursday morning and then revised after the daily briefing in the evening. 

The Latest News

The week did not get off to a good start. Global shares were hit by worries about a second wave of Coronavirus. The Chinese government clamped down on travel as it recorded 137 new cases in Beijing in the last week. The US Federal Reserve added to the worries, warning of a slow recovery and saying that it expected the US economy to shrink by 6.5% this year. 

In the UK, the figures everyone had been dreading were finally released – and showed that the economy had shrunk by 20.4% in April. Given that the country had been in lockdown for the whole month many economists had been expecting an even worse contraction. 

Monday saw Boris Johnson meet with the heads of the EU and a joint statement was issued afterwards, formally accepting that the transition period will end in December. Talks with Australia about a free trade deal have also opened, with the Prime Minister saying that a trade deal will bring the countries “closer than ever.” Except on the cricket pitch, of course…

Sadly this was another week that brought a round of confirmed job cuts, with Centrica in the UK and Lufthansa in Europe announcing cuts running into the thousands. 

City AM commented that up to half of all businesses are likely to lay off staff once the Government’s furlough scheme ends, with the BBC reporting that the number of people on UK payrolls fell by 600,000 between March and May. 

Despite this there was some good news to end the week. US  retail sales rebounded sharply in May, and the Federal Reserve announced a further stimulus package as rumours circulated that the President was set to unveil a $1tn (£800bn) programme of infrastructure investment. 

In the UK, Oxford University reported that it had found a drug proven to reduce the risk of death in patients with the virus: the Government authorised the NHS to start using the drug immediately. And following the Fed’s lead, the Bank of England is expected to announce billions of pounds of additional stimulus measures for the UK economy. 

The Stock Markets

It was another week when the leading stock markets we cover in the update largely moved in one direction and – unfortunately – that direction was down. As we have commented above, markets were sharply hit by the Federal Reserve’s warning of a slow recovery, and fears about a second wave of the virus. But by the end of the week much of the ground had been recovered. 

The FTSE-100 index of leading shares was a good example, falling 4% at the beginning of the week but recovering to end just 1% down at 6,253. The German DAX index was down by the same percentage to 12,382. 

In the Far East, China’s Shanghai Composite index was unchanged in percentage terms at 2,936 but the Hong Kong market fell 2% to 24,481. Japan and South Korea were both down by 3%, with the markets dropping to 22,456 and 2,141 respectively. 

America’s Dow Jones index was also down 3% at 26,120 while the more broadly-based S&P500 index fell 2% to close the week at 3,113. 

After rising for the last two weeks, the pound fell back against the dollar and ended Wednesday down 2% at $1.2525. 

Our Thoughts

As we have commented previously, we are going to see more and more confirmed job cuts in the weeks and months ahead. This week the British Beer and Pub Association revealed that UK beer sales had slumped to their lowest level for 20 years in the first quarter, as lockdown impacted the hospitality sector. The 1.5bn pints poured marked the lowest rate since records began in 2000. 

With the traditional British pub in trouble before lockdown, the coming months do not look bright for the industry. The same is true of some towns, with an article on the BBC website predicting that Newquay – where more than half of all the people employed work in tourism and hospitality – will be the town worst hit by the virus and the subsequent lockdown. 

So when the good news of the first effective treatment against the virus arrived, it was more than welcome. That, plus the determination of the central banks to provide stimulus packages – the Bank of England has just announced a further £100bn package as we write – helped to limit the impact on world stock markets. 

UK shoppers certainly took note of the pleas from both the Prime Minister and the Chancellor to ‘shop with confidence’ and long queues were in evidence on Monday. It will be interesting to see if UK retail has a similar ‘rebound’ to that seen in the US.

And so to the week’s lighter news. Unilever, owners of the Marmite brand, were forced to issue a grovelling apology on social media, following a flurry of complaints. Due to the current crisis – prompting both a surge in demand and a shortage of brewer’s yeast – Marmite has only been available in 250g jars. Can’t find a squeezy jar anywhere, tweeted Lauren, ending her tweet with several crying-face emojis.