It’s been a week of headlines covering infection rates, restrictions and a job support scheme but none have been great.
Infection rates are on the increase and health and scientific advisers to government are concerned about the potential for an exponential rise. The narrative suggests we are better prepared this time and will avoid a full national lock down which looks increasingly unnecessary. Targeted, localised lockdowns appear a more effective and acceptable solution. Living with Covid’ is a broad and extremely complex issue to deal with and attracts a “referendum strength” of opinion and division on the effectiveness of any approach.
Financial market numbers have been negative for the month and in addition to the obvious Covid’ cause, there have been different reasons in different regions. In the US for example, the election is creating uncertainty and while interest rates there are now accepted as being low for the foreseeable future, the lack of further stimulus being announced has unsettled investors. This has coincided with a tech sell off as investors take profits from growth in technology shares. Any sell off can spook markets, reduce values and perpetuate further sell off but it’s been fairly low brow. Even with the US market trading lower than it did at the beginning of the week and month, it remains over 40% higher now than the low point in March. Technology stocks have taken a dip, but they have not fallen out of favour. Despite the economy lagging (a common theme), the US stock market has broadly recovered.
In the UK, the headlines have been dominated by the increase in positive tests, restrictions to curb the virus spread and, in the last 24 hours, the job support scheme that will replace Furlough. Markets dropped sharply in the earlier part of the week amidst expectation of tighter restrictions than were announced. These losses have largely recovered as restrictions were less onerous than anticipated and job support measures are digested. Both the economy and the stock market are still some way off pre Covid’ levels.
Markets do not appear comforted by the job support scheme. Mr Sunak has made it clear that he will only help employers retain staff where the jobs are expected to remain but not for those that won’t. This feels like a difficult but good, or at least fair, decision. It reflects the economic reality of Covid’ but will not be welcomed by all. Broadly, employees have been paid 80% of salary at no cost to the employer under Furlough. Since August the Furlough cost to the employer has been gradually increasing. In October the cost to the employer will be 20% of income (albeit capped) plus pension and NIC. An employee cannot work for the hours paid under the Furlough scheme.
From November the scheme increases employer costs but brings Furloughed employees back to work, albeit on a part time basis. On balance, it’s a clear message that support is being switched off where there is no likelihood of job retention. Only time will tell how effectively it reduces the expected rise in unemployment.
There are strong views in the UK on either side of the restrictions debate, as one side argues they go too far while the other counters that they are necessary. Students returning to, or starting, university appear to account for many of the positive cases. This is hardly surprising, but sympathy is mixed as many who have played by the rules feel they are being unfairly restricted, or potentially put at risk, due to a minority. The focus remains on trying to help us all observe guidance rather than by enforcing it but at the same time, the threat of enforcement remains. Winning hearts and minds to get “buy in” and ensure compliance seems the better option but the “fed up” factor is understandably creeping in as politicians push the “keep going” message. has not been a good year to leave school and start university.
The numbers covering infection rates and financial market losses have not been good for the week or even the month. If however we zoom out a bit, the same data over the last 6 months shows a more encouraging trend. In September financial markets lost a relatively small amount of the gains made since the March low point. Infection rates have reduced significantly over the period only to rise recently. As we take stock, the point is one of perspective. This will be an important anchor for us all while policy makers watch the economic effect as support is reduced. It could be a bumpy transition.
As Eddie George, former Governor of The Bank of England, said during the Global Financial Crisis “all things come to an end”. I look forward to the end of Covid’. Until then, have a good weekend.
Regards
Kenny