WeeklyWatch – Londoners optimistic of return to ‘business as normal’

30 June 2020

Stock Take

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.

Eurozone recovery

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.

Wealth Check

Participation in workplace pension schemes is on the up, as more eligible employees auto-enrol and invest in their financial future. But worryingly, the proportion of self-employed workers contributing to a pension has fallen by a third over the last decade.1

Self-employed workers are not covered by auto-enrolment, and there is concern that the fall-out from the COVID-19 pandemic will add to the decline in contribution rates as businesses come under even more pressure to cut costs. While preparing for your retirement might not seem like an obvious priority at the moment, the COVID-19 pandemic has shown the importance of careful financial planning, allowing you to be flexible in unexpected circumstances.

Claire Trott, Head of Pensions Strategy at St. James’s Place, commented:

“The retirement landscape is changing at the same time as workers are facing a very uncertain economic outlook. Difficult though it can be, it’s vital that employers, and self-employed business owners, don’t lose sight of their long-term savings targets.”

There is also concern over whether salaried employees are saving enough. Trott continued:

“Life expectancy in the UK is increasing, so the average retirement pot will have to last longer than it does today. Enrolling in your workplace pension is an important first step with retirement planning, but contributing the minimum amount means you are unlikely to achieve the level of retirement income you want, plus it puts you at real risk of outliving your savings.”

It’s important to make sure your financial strategy is moving in the right direction in order to fund a comfortable retirement. Read our top 10 tips for taking control of your pension here.

1, Department for Work & Pensions, June 2020

In the picture

Lockdown measures have given us the opportunity to save more money. According to the Bank of England, UK households deposited a jaw-dropping £16 billion into savings accounts in April – three times the monthly average!

The savings households have accumulated through lockdown is good news for the economy, as long as consumers spend it when the retail and hospitality sectors reopen this weekend. That said, households would do well to hold back some of their new savings – with Britain facing considerable economic difficulty for some months to come, having a financial buffer in place is essential.

The Last Word

“You have an individual responsibility to yourself, but you have a societal responsibility because if we want to end this outbreak, really end it, […]we’ve got to realise that we are part of the process.”

– Dr Anthony Fauci, US Infectious Disease Chief, responding to a spike in COVID-19 cases in 16 US states.

The information contained is correct as at the date of the article.

Payden & Rygel and Burgundy are fund managers for St. James’s Place.

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.

FTSE International Limited (“FTSE”) © FTSE 2020. “FTSE®” is a trademark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

© S&P Dow Jones LLC 2020; all rights reserved.

Back to news