30 June 2020
Many consider pubs to be a pillar of London life, even in a pandemic. Samuel Pepys would certainly agree – even during the height of the Great Plague in 1665-66, he continued to frequent his local hostelry, albeit less often. Over 355 years later, and Brits will soon be able to order a pint (or two) at their local, as pubs and restaurants have been given the green light to reopen from Saturday.
Current high-street scenes mirror Pepys’ diary after the peak in plague deaths: “The town fills apace, and shops begin to be open again”. Indeed, Prime Minister Boris Johnson has announced the most significant relaxation yet of lockdown rules in England, hoping that the population will follow the author and return to their former lives.
Bars and eateries may well be busy again by Christmas if the virus is contained. But it may be money, not health fears, which holds back households over the next year and beyond. The biggest risk to GDP returning to pre-crisis levels is that the fall in incomes and revenues will reduce the ability of households and businesses to spend.
European markets experienced a welcome boost last week when a closely watched survey of business activity indicated a better-than-expected recovery in the continent’s major economies in June. France led the way, reflecting a faster easing of containment measures. The data suggested that the level of economic activity reached its nadir in early April in most developed markets.
The figures came a day after a CBI survey showed that British industrial output had recorded its biggest ever quarterly fall in the three months to June. The International Monetary Fund lowered its global growth forecast and said it expects the UK economy to shrink 10% this year. Unemployment is expected to more than double from its current rate of around 4% to hit the levels of the 1980 when the government closes its furlough scheme in October. The Post Office and aviation services firm Swissport were the latest companies to announce thousands of UK job losses.
A setback in The States
After Tuesday’s rise, however, the mood on markets deteriorated and stocks slid over the week. The number of new coronavirus cases surged in several US states, which reimposed lockdown restrictions and paused reopening plans. Friday saw a record spike in cases across the country, intensifying fears that the nascent economic recovery is in jeopardy.
New York allowed companies to reopen their Manhattan offices on Monday (although few workers returned) but was then compelled to impose quarantine restrictions on people travelling to the area from eight other US states.
There is, of course, a political element to the reopening of the US economy, and November’s Presidential Election is another likely factor that influences markets over the rest of the year.
Jeffrey Cleveland of fund managers Payden & Rygel, based in Los Angeles, commented:
“Politics weigh heavy here. If you ask someone of a certain side of the political aisle where they stand on things masks, shutdowns and virus concerns, it does seem to break on political lines.”
Right now, things don’t look great for President Trump. Cleveland added:
“Prediction markets currently put the chance of a Democratic sweep (of the Presidency, House and Senate) at its highest in this cycle, and that’s a lot to do with the economic backdrop.”
Apple and advertising
Meanwhile, the tech mega-stocks march on. The FAANGMs now represent 25% of the S&P 500 by market capitalisation and were in the news last week. Apple announced that it will transition from using Intel chips in its Mac computer to processors designed in-house – a move that will take two years to complete.
Last week also brought news that spending on digital advertising on platforms such as Google and Facebook is set to overtake that on traditional media for the first time this year; a shift accelerated by the coronavirus pandemic. Yet, Unilever, Starbucks and Coca-Cola were among more than 90 companies to announce a boycott of advertising on Facebook as part of a campaign to stop racist, violent or hateful content from circulating on the platform. Facebook’s share price dropped nearly 10% last week.
Is this a temporary blip for Facebook’s prospects? Eric Goldstrand of Burgundy, Co-managers of St. James’s Place Worldwide Managed fund, observed:
“The market has historically underestimated the scope of the advertising businesses of Google and Facebook. Facebook allows ad buyers to efficiently reach more than three billion monthly active users across its products. These companies have unique attributes and characteristics, so they should not only weather the current situation well but be able to take advantage of opportunities as they are presented.”
Yet, just as researchers are battling to discover an answer to COVID-19, Mark Zuckerberg must find a speedy solution to the problem of harmful content.