The Easter Bunny is considered an essential worker. Last week’s announcement in New Zealand by Prime Minister Jacinda Ardern would have been greeted with relief by children (and plenty of adults), who were duly delivered some egg-shaped comfort to help them through these dark times.
News in the UK that Prime Minister Boris Johnson is on the road to recovery was an undoubted piece of good news. Otherwise, it was another week of grim and staggering statistics. The number of confirmed coronavirus cases reached 1.6 million globally; over 100,000 people have now died.
According to the International Labour Organization, 81% of the global workforce is living under full or partial lockdowns, and 1.25 billion workers around the world could face hardship as jobs, working hours and pay are cut. In the US, more than 16 million people are now unemployed and seeking benefits.
The World Trade Organization has predicted a contraction in trade of between 13% and 32% this year; the variance reflecting the huge uncertainty about the impact of the pandemic. The most optimistic forecast assumes a steep drop in trade followed by recovery in the second half of 2020 – a scenario that requires significant progress in controlling the virus in the next few months.
Fears about cash reserves in the face of the downturn have prompted a growing number of companies to reconsider shareholder dividend plans. As of last week, 45% of London-listed companies had cancelled or postponed their anticipated pay-outs.
With no end to the UK lockdown in sight, a quiet bank holiday weekend was ensured. Road traffic in the UK has fallen 73% since the measures were put in place and is down to levels not seen since 1955.
However, Norway, Denmark and Austria announced plans to ease restrictions; and in Wuhan, the Chinese city in which the global coronavirus outbreak began, the lockdown was partially lifted last week.
Even Spain and Italy, hit so hard by the disease, began a very limited easing of lockdown measures this week, as the daily number of new infections and deaths declined. EU finance ministers finally agreed a €500 billion rescue package for European countries hit hardest by the crisis; a deal French finance minister, Bruno Le Maire, hailed as the most important economic plan in EU history.
Stock markets around the globe were certainly encouraged by news of coronavirus curves flattening in Europe and of some lockdowns being eased. Wall Street set the tone last Monday, with the S&P 500 gaining 7% to register its eighth-best day since the Second World War. By midweek, it had broken
out of bear market territory, up more than 20% from its March low; a feat matched by Germany’s DAX index. By the end of the week, US stocks had registered their biggest weekly gain in 46 years.
“We believe that it is premature to think that we have reached a turning point in the pandemic,” said Mark Dowding of BlueBay, co-manager of the St. James’s Place Strategic Income fund. “News flow is likely to remain challenging for some time – particularly in regions such as the Southern states of the US, which have been slow to embrace social distancing. It seems unlikely that markets will be able to trend in a straight line, though there are reasons to believe that many markets are past their lows, as long as policymakers are able to continue taking appropriate measures in the weeks ahead.”
There are concerns that the length of the US economic recovery is being underestimated, as the country could face the longest period to reach its COVID-19 be the last to reach its COVID-19 peak. The US welfare system could also be a factor. “The US economy is a ‘hire and fire’ culture, unlike the more developed welfare system in Europe which has seen employees furloughed instead,” suggested Keith Wade, chief economist at Schroders. “We still think the GDP hit in Europe will be greater than the US in the short term, but that it has a better strategy for recovery because workers can be brought back in more quickly.”
Over the weekend, the slump in oil demand caused by the coronavirus finally compelled the world’s biggest producers to agree an unprecedented cut in output of nearly ten million barrels a day, in a bid to boost prices. The price war between Russia and Saudi Arabia had seen Brent crude fall to its lowest level in 18 years. President Trump hailed it as a “Great deal for all!”, which would “save hundreds of thousands of energy jobs in the United States”.
Trump knows the importance of the state of the economy to his re-election prospects, and last week learnt that his opponent for November’s presidential election will be Joe Biden, after Bernie Sanders withdrew from the race to become the Democratic nominee.
BlueBay and Schroders are fund managers for St. James’s Place.
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