This week headlines report slowing of the virus spread and the benefits of financial stimulus, as government transitions from the reactive phase to more strategic management of the crisis and consideration of an exit strategy.
Last week’s webinar recapped on the recent events reported in March which were summarised as:
• The virus threat heightening
• UK Policy response – lockdown
• Economic cost reflected in financial markets
• UK policy response – fiscal stimulus
The webinar can still be viewed at https://us04web.zoom.us/rec/play/6JMkdeH8qDo3H9CT5ASDUaB7W47pK62sgHVP_qcMzUi0ACUDMwbzYuATZ-ZVpTUspGToihcwip8y-O2e?continueMode=true
These updates aim to provide useful content and ideally, to give a better understanding of the key factors needed to end domestic lockdown and economic shutdown. They consider the progress made towards this and what still needs to happen.
UK news this week continued to enforce the need to stay at home but also with the positive message that this is proving effective in slowing the spread of infection and mortality. The UK stock market has made further gains this week attributed to the news flow. However, with warm weather forecast this weekend in the south east, lock down compliance may be tested.
The big question remains “when will this end?” and the answer is almost certainly dependant on further reduction in the virus spread and mortality rate.
This will need effective, widespread testing to provide sufficient proof of reduced infections and allow any easing of lock down. The UK government seem reluctant to comment on this ahead of the planned review.
The other big question is around economic recovery. Recent updates have considered what needs to happen and Policy Response has already addressed much of this in the UK but it’s clearly dependant on the return to work. Financial markets are trading higher this week than last and the virus spread has slowed. This is good news and a step in the right direction but should also be viewed with caution.
We already know that second quarter (company) earnings will be poor reading and financial markets will need to see these earnings improve in the third and fourth quarters to support higher values, in other words for see meaningful stock market recovery.
The notion of “back to normal” by the year end is perhaps optimistic. It may be more prudent to consider where we’re likely to be at the end of 2021 relative to where we thought we’d be, before Coronavirus. If we can consider the UK’s Gross Domestic Product (the country’s income), the UK National Debt and corporate earnings (the profit made by companies quoted on the stock market), the difference between anticipated and actual will show the lasting effect of the crisis in economic terms, i.e. the cost of dealing with the pandemic.
There has been reference to consequential austerity and comparisons to the Great Depression of the 1920s however, this overlooks two points. Firstly, governments have come through the GFC (global financial crisis) of 2008 and have become comfortable with much higher levels of national debt which are easier to manage in a low interest rate environment, and further helped by inflation.
Secondly, there is no public appetite for austerity – instead, households and businesses are in receipt of free money and public gratitude for services like the NHS is shown and broadcast at 8pm each Thursday. In the webinar last week levels of national debt against GDP were compared for the UK against other European countries and the US, suggesting there was additional capacity as required.
In conclusion, there is demonstrable progress in the key areas but not sufficient as yet to ease lock down and start economic recovery. Despite the huge cost to lifestyle and life itself, the data shows improvement and progress in the fight which is good news.
As always I hope this content is helpful and that you remain safe and well.
Regards
Kenny