WeeklyWatch – Reporting inaccuracies confirm suspicions about China
21 April 2020
As the global financial crisis sent the world economy into freefall in 2009, G20 leaders met in London/ Nicolas Sarkozy, the French President, said at the time: “None of us has a plan,” to which Barack Obama replied: “Gordon has a plan.” And that plan was one they’d all end up following, when it came to the banking sector at least.
Unfortunately, this kind of global coordination is hard to find today. Amid the world’s major economic and trading hubs (the US, China, and the eurozone), the responses to the crisis have differed and even at times struggled to achieve even internal unity. As for a global plan, there isn’t one. And the shortcomings of national responses are now beginning to show.
Last Friday, in an announcement that only added to existing suspicions abroad (as well as online forums in China), Wuhan’s prevention and control taskforce revised the city’s death toll up by 50%, from 2,579 to 3,869. It has also been suspected that Beijing had been underreporting the death toll as well.
But whatever the difficulties with accurate reporting, Beijing certainly knows how to impose a national lockdown – something the latest batch of economic data makes clear. On the same day as the data revision, it was also reported that the Chinese economy shrank 6.8% in the first quarter of 2020, making it their first negative quarter since records began in 1992. It was only last December that economists were worried about China’s GDP growth falling slightly below +6% in 2020.
In Washington, Donald Trump withdrew US funding from the World Health Organisation (WHO) as well as announcing a new campaign last week; ‘Opening America up again’. The campaign allows states to begin loosening lockdown measures once the number of new COVID-19 cases has been in decline for 14 consecutive days, effectively passing the decision-making responsibility to state governors. While stocks in the US rose late in the week, short sellers have taken their most aggressively negative positions on stocks for years.
It was doubtless a relief for the president to see the S&P 500 rise last week, along with the FTSE 100 and China’s CSI 300. But the latest economic data is much harder to find relief in, particularly when it comes to retail sales and industrial production. And with another 5.2 million Americans filing for unemployment benefits last week, an April survey of 57 economists expects 14.4 million jobs to be lost, additional to the 17 million already lost, with the unemployment rate rising to 13% in June.
“As we move towards lockdowns being eased, we believe that GDP will have been adversely impacted at an approximate 35% run rate for around six weeks from mid-March to the end of April, before lessening to a 25% impact during May and a 15% impact in June,” said Mark Dowding of BlueBay, which co-manages the St. James’s Place Strategic Income fund. “Cumulatively, this will represent a total subtraction of around 6.5% from GDP over this period. We see US GDP over the calendar year at approximately -4.5%, with growth in the eurozone and UK around -6.5%.”
Amid the President’s WHO announcement came reported US deaths of nearly double the previous record – reaching a new record of 4,591 in just 24 hours. G7 leaders came together virtually to express their support for the WHO the day after Trump’s announcement, while prominent public figures such as Bill Gates criticised the president’s decision.
The EU, meanwhile, has had its own problems to face; the north-south divide, so evident during the euro crisis, has been made prominent once again. Last week, in fact, Ursula von der Leyen, president of the European Commission, was obliged to publicly apologise to Italy on behalf of the EU for the latter’s poor response to the rapid emergence of COVID-19 in the country.
Cometh the hour, cometh the woman?
With France as the most notable exception, several leading EU governments have shunned coordinated measures, leaving it to the European Central Bank to provide the backstop. While it might have preferred politicians to take greater responsibility, it nevertheless stepped in with a bond-buying programme in March. Echoing Mario Draghi’s promise in 2012, Christina Lagarde said the bank would “do everything” in its power to support the currency area.
Central banks around the globe are vital to the financial response to the crisis-induced downturn: the Fed’s balance sheet has risen by $1.8 trillion over the last four weeks, now standing at a record $6 trillion. The ECB’s balance has also risen by €0.5 trillion in the same period. These rates just go to prove that these are unprecedented times, standing far above anything trialled under post-financial crisis quantitative easing.
“The actions of the Fed and the fiscal support provided by governments around the world have been absolutely critical – providing liquidity to the financial system has been of paramount importance, as has the support for individuals and businesses caught up in this,” said Jim Henderson of Aristotle Capital, manager of the St. James’s Place North American fund. “The spike in unemployment would have been so much worse if action hadn’t been taken to help companies. These are short-term measures to provide short-term support. More stimulus is likely to be required if this lasts more than a couple of months.”
Christina Lagarde still has a job on her hands despite the stimulus already injected, not least because eurozone companies rely more on credit than their peers in the US. Moreover, this crisis is not over yet. France, Italy and Spain all extended their lockdowns last week until late April or early May, without discounting the possibility of further extensions.
The UK followed suit with a three-week extension, and there were (denied) rumours of new decisions on school openings. The possibility was even floated of a year-long lockdown for the over-70s. Amid the uncertainty, one thing is clear: every lockdown comes at a cost. Last week, the Office for Budget Responsibility released a model that showed the UK economy contracting by 35% in the second quarter, with the deficit rising to 14%, if the lockdown were to continue for another three months.
It’s clear that governments have some fiendishly difficult calculations to make in the months ahead: expect them to vary.
According to research published by the Royal London in October 2019, over 40% of property owners do not have a Will in place. That’s a worrying picture and increases the risk of their main asset going to the wrong person should they die.
According to the research, one in five adults without a Will don’t have one because they believe they have nothing valuable to pass on, even though 16% of those also own a property either with a mortgage or outright. Deciding who to appoint as executor and trustee was also a decision that homeowners found hardest about writing a Will, followed by deciding who would benefit.
No matter how hard it is, getting a Will in place, and reviewing it regularly, is a foundation of good financing. Yet it can be difficult to think about, especially during difficult times.
Ian Bond, chair of The Law Society’s Wills and Equity committee, said that the coronavirus appears to have “focused people’s minds” however; many legal practices have reported a surge in demand for Wills since the lockdown began.
Despite the pandemic, having a Will in place offers you and your loved ones reassurance that, no matter what, our assets are protected.
Advice relating to writing a Will involves the referral to services that are separate and distinct to those offered by Wellesley Wealth Advisory and is not regulated by the Financial Conduct Authority.
In the picture
It is hard to quantify the cost to human health and jobs in the current pandemic, even in economic terms. But comparisons can be instructive, as Jim Henderson of Aristotle Capital recently argued.
The Last Word
“The sun will shine on you again and the clouds will go away.”.
– Captain Tom Moore, 99, whose 100-lap garden fundraiser closed last week, and has now raised £26 million* for the NHS.
*This figure was still rising at time of writing.
Aristotle and BlueBay are fund managers for St. James’s Place.
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