Headlines have swung between the good and the bad news this week with some ugly news inevitably thrown in. This has been reflected in financial markets by value swings however, they have been minimal compared to levels seen only a few months ago. Markets are reacting to (and broadly absorbing) news that was widely expected – it feels like acceptance of the inevitable rather than fear of the unknown. Small progress but progress.
This morning retail figures for July are reported as being above pre Covid’ levels, government borrowing is marginally lower than expected year to date and August borrowing is less than July. Retail news is positive but perhaps tells of consumers making up for lost time rather than a sustainable trend – it’s a welcome distraction from store closures and redundancy but should be tempered against this. Several months of similar data would be a far more significant and very welcome trend but the direction if travel is good.
While UK Government debt may be less than previously expected for the year to date, it has now hit £2tn which brings it in line with UK GDP. To put this in context, pre-Covid’ debt was around 85% of (pre-Covid) GDP. Government borrowing is a fast-changing picture for obvious reasons but as a comparison, US national debt was 149% of GDP on 1st May this year and Germany at 153% a month earlier. Both have since increased. However, neither country has the UK’s Brexit headwind to consider nor as sharp a drop in GDP year to date as the UK. Our economy is not without challenge albeit government borrowings are not excessive against GDP or other developed economies. There’s more in the tank if required and it looks like it might be. Again, some good news and some not so good news: markets up, markets down but relatively small swings.
Over the course of the week to close of business last night the FTSE100 was down around 1.5% (there were 4 days in march over which the FTSE100 lost over 10 times this at 12.21%), while the US indices have seen modest gains buoyed largely by tech giants Tesla and Apple. The US tech-heavy Nasdaq index closed at a new all-time high yesterday. As if to emphasis the extent to which there are winners and losers from the pandemic, Apple’s share price rose to give the company a brief glimpse of a $2tn valuation: eclipsing the total UK FTSE100 market value. Yes, really: the value of one US tech company with a really good marketing department is equal to the combined value of all the companies listed on the UK FTSE100 (or a marketing company with a really good tech department?). However, the US headlines report a negative outlook from the Fed’ citing uncertainty about the path of the virus through the second half of the year, the flu season and the effect on the broader economy.
In the UK it’s been generally accepted that the current value of the FTSE100 is based on the enormous government financial support aimed at returning economic outlook to pre-Covid’ levels by the end of next year. Sure, there’s more economic bad news to come there’s also the various restrictions placed on life, work and travel (and the associated nervousness) to lift, so we really need a vaccine. Nothing new here and the race is still on.
The end of next year feels a long time away and when we consider how the world has changed so far this year, the end of next year feels a lifetime away. In comparison the end of the week is only a few hours away so have a good weekend when it comes.
Regards
Kenny