Market over the month
The week started with Rishi Sunak considering plans for new taxes on goods sold online to even the field on which traditional retailer and online sellers play. The UK government guidance on quarantine for those returning from Spain seemed to receive more coverage than this or company earnings reported for the second quarter. Covid’ news has focused on the US and locally, on restrictions announced yesterday by Matt Hancock.
Consumer behaviour and household consumption have changed. UK retail sales in June were down by almost 12% from last year, with non-food down by over 36%. Online sales in June were up by almost 75%. A 2% levy on all online sales is estimated to raise circa £2billion per annum. This will help UK finances but further measures will likely be required to help high street retailers adapt to spending habits and living with Covid’. Along side this, businesses like barber shops, hairdressers and nail bars are reported to be thriving as consumers seek high levels of personal service (we note that extend to financial planning!). While this is encouraging to read it’s more of a trend to note than a meaningful contribution to economic recovery.
There are divided opinions on a second wave of infections. The UK and Europe eased out of lockdown when the infection numbers and perceived risk were sufficiently low. Yes, there have been further outbreaks but these are relatively small, are being managed locally and will also reflect increased testing (but it’s unclear to what extent). There is an argument that the US did not lockdown effectively and eased restrictions too early. Mobility data shows most of the UK is “out and about” which together with the announcement that Scottish schools will return on 11th of August, makes our collective responsibility to observe Covid’ guidance all the more important (I’ll retreat from the moral high ground).
The UK’s FTSE100 has dropped just under 2.5% in July and ironically the US’s S&P500 is up over 4%. This week both Shell (often considered a bellwether for the global economy) and Lloyds announced losses for Q2. The market reaction suggests that the focus remains on future earnings and not Q2 which is a welcome constant. Government and central bank support has been invaluable and Furlough has effectively provided UK businesses with revenue. However it should be the underlying economic fundamentals which allow businesses to generate revenue from consumers. The old adage “give a man a fish and you feed him that day; teach him to fish and you feed him for life” springs to mind. Many fish are being given but we need to start fishing (again). I often speak with my retired uncle and before he heads off with his fishing rod I wish him “tight lines”. This seems like an appropriate message for the broader economy.
Whether you are at home this weekend (The British Grand Prix’s on) or out and about, have a good weekend and if anyone is venturing out to a local river, tight lines!
Regards
Kenny