Government daily updates report good news this week in respect of infection and mortality rates. The battle to provide PPE and increased testing is also reported positively and it was announced on Wednesday that (government funded) vaccine trials are likely to start this week in the UK. The government’s good news flow continues.
Beyond the questions fielded at the daily updates, a more detailed media analysis of how other matters have been handled is well underway. The Sunday Times recently set out an account of the timeline and early warnings from government advisers which it reports as being largely ignored. It’s a pretty scathing account.
There will almost certainly be a day of reckoning (the Public Enquiry) to answer the mounting questions of government and the scientific community, as to who advised of what and when, and also to explain the differences in the UK approach to other European countries. This may well influence government behaviour and the language used in the short term. Against this background, it seems any backlash from extended lockdown is more palatable than the unthinkable consequence of a second wave of infection. The Scottish Government appear even more cautious. The two big issues for government now look like Accountability and Exit Strategy.
I wrote last week that it remains unclear how government criteria to end lock down will be met without either quick and accurate testing or a vaccination. It seems logical that a medical crisis requires a medical solution and that a gradual easing of restrictions by sequencing identified lower risk groups, demographics or industry sector may be more of a PR discussion than a workable solution.
Financial markets have had another week of “green” screens, reflecting growth which is a very welcome change from the day to day value swings and red screens seen in March, but the question remains, “have markets got it right?”.
Much of the value recovered has been attributed to the good news in respect of infection and mortality rates. It seems appropriate to again remind that soon to be reported quarterly corporate earnings will make poor reading which could easily mean “screens are back to red” albeit, hopefully not, and at worst, only in the short term.
This leads back to the recovery/exit strategy issue, and for investors, recovery: specifically, how to best position. There are already winners and losers emerging. “Defensive Staples” like, for example Unilever, have performed well as we all still need to brush our teeth. Equally, Amazon and Netflix gains reflect the recent changes in spending and lifestyle behaviour. Pets have been shown to enhance our wellbeing during lockdown and pet care sales are reported to have increased by 300%. However, medium and longer-term consumer behavioural changes are difficult to predict and will have bearing on the market’s winners and losers during recovery.
There are already discussions with our analysts around these points and whether changes will be made by the investment managers within individual funds or if a change of those funds might be required to re-position. While the picture is a changing one, it seems the selection of individual companies in which to invest (the shares/equites to buy) will become critical to maximise participation in the recovery, albeit within the given risk mandate.
It would be difficult to avoid comment on the oil price in a market update. The price war earlier this year followed by the reduced demand in the current lockdown environment has resulted in a surplus supply. A negative oil price effectively means that it is costing more to produce a barrel of oil than the barrel is sold for. As with so many price related issues, the good news story is most likely post lockdown.
Last week, on Thursday 16th April, the FTSE100 closed at 5,628 marking a recovery of almost 15% from the March low. Yesterday. on Thursday 23rd the closing level was 5,826, marking a rise of over 3.5% for the week. Again, good news but with hint of caution ahead of company results being reported.
I’ll sign off on that positive note and hope that whether you are in the Furloughed and enjoying the recent good weather, or the working harder at home than you did in the office category, you and your family are and stay in good health.
Regards
Kenny