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Please see this weeks ‘Markets in a Minute Update’ from Brewin Dolphin

Brewin Dolphin – Markets in a Minute Update


Global share markets fell back last week amid worries about a second wave of the virus later this year.

Over the week:

  • US shares fell 2.3%
  • Eurozone shares fell 4.3%
  • Japanese shares lost 0.7%
  • Chinese shares fell 1.3%.

However, the mood changed as hopes of progress on a vaccine were boosted over the weekend, and the trend in new infections continued falling across Europe.

  • The FTSE100 gained 4.3% yesterday. Energy stocks outperformed on a rising oil price rebound in demand for fuel as economies open up again.
  • Stocks were up across Europe, while in the US, the Dow closed up by 3.8% and the S&P500 gained 3.1%.

Markets appear laser-focused on any good news on the fight against the virus and hopes for a quick economic recovery, while ignoring the downbeat economic data and more cautious forecasts.

No expense spared in hunt for vaccine

The government announced that it would provide a further £84m to fund the ongoing vaccine development at Oxford University and Imperial College London.

  • Oxford will receive £65.5m and ICL will receive £18.5m as the vaccine trials on humans and animals are expanded. The idea is to cut the development time for a vaccine from the usual eight years to just two years.
  • Oxford University has also agreed a licensing agreement with AstraZeneca for the commercialisation and manufacturing of their potential vaccine. If the trials are successful it means that AstraZeneca will make up to 30m doses available for UK residents by September, as part of an agreement to deliver a total of 100m doses.
  • The government also plans to contribute up to £93m towards the construction of a new vaccine manufacturing centre, which is intended to open next summer in Oxfordshire, and will have the capacity to produce enough doses for the entire UK population in as little as six months.

However, a note of caution. Nobody has ever succeeded in producing a vaccine for a coronavirus. Even if we develop one, we don’t yet know what depth of immune response it would generate and how long that response would last. It is possible, for example, for a vaccine to prevent suffering from a disease but without inhibiting its transmission. There are numerous reasons to be cautious but the government does at least appear to be throwing everything at its development, and the UK is among the frontrunners in the ongoing research.

Monetary policy

Last week we heard from Bank of England Governor Andrew Bailey. His most eye-catching comment was that the Bank of England can spread the cost of the crisis over time. This is a welcome statement, as it came against the backdrop of a leaked document from the treasury to the Daily Telegraph, which said the government faced a stark choice between spending cuts and tax hikes in order to prevent increased debt triggering a sovereign debt crisis. In other words, a return to austerity once the pandemic is under control.

Since austerity removes liquidity from the economy, it reduces investment and productive capacity, which is essential for economic growth, especially at a time when we will (hopefully) be emerging from recession. There has been a broad outcry from economists against the Treasury’s conclusions.

By way of tools to prevent this eventuality the Bank of England obviously has the ability to buy more bonds and also fund the government through the ways and means account (temporarily of course). At the same time the UK has a floating exchange rate which can decline to improve the attractiveness of UK debt at the cost of inflation to UK consumers. Therefore, there seems no risk of a sovereign debt crisis, even as debt to GDP does increase drastically.

Furlough scheme extended

Chancellor Rishi Sunak extended the job retention scheme that pays 80% of staff wages until the end of July, and then beyond to the end of October. It was due to finish at the end of June. During this longer extension there will be some sharing of the financial burden between the government and employers. There will be details emerging on this over the next fortnight allowing the standard “devil will be in the detail” conclusion. If the extended furlough scheme is not generous enough then it could see a serious increase in unemployment. If it is too generous it will see a serious increase in indebtedness. The latter looks the lesser evil for the time being.

Encouraging news from Asia

Asia is further ahead of the curve and generally seems to have better procedures for tracking and tracing potentially infectious individuals. Infection rates remain well contained. There were some stories of new infections in the Chinese cities of Wuhan and Jilin but the numbers are very low. The same is true for Hong Kong. Asia’s experience probably offers the best case of how we can expect the release of lockdowns to go in the west.

Activity is ramping up in China. Traffic jams have returned to Beijing while 100m students have returned to school across the country. Restaurants are also reporting that customers are dining out again, with no need for social distancing, although diners’ temperatures are usually taken on arrival.

Signs of life in UK property market

Rightmove said on Monday it saw an immediate release of pent-up demand on the day the housing market reopened last week.

Home-mover visits to Rightmove’s site returned to pre-lockdown levels on 13 May with circa 5.2m visits, up 4% on a year earlier. Unique sales enquiries were just 10% behind the same day in 2019, while rental enquiries hit the highest level since September 2019.

However, it seems likely that given the imminent recession, many properties will sell at a discount.

Oil price jumps

Oil prices rebounded by 20% in the week to Friday as production fell and demand rose (US gasoline demand rose by 22% in the last week of April). US WTI rose by a further 4% on Sunday to break through the $30 level for the first time in two months. Global benchmark Brent Crude rose by 3.9% at the weekend to more than $33 a barrel, and continued up past $34 yesterday.

Capital and income from it is at risk.
Neither simulated nor actual past performance are reliable indicators of future performance.
Performance is quoted before charges which will reduce illustrated performance.
Investment values may increase or decrease as a result of currency fluctuations.
The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.

Some good news and signs that we are generally moving in the right direction. It may take some time before we reach our ‘new normal’, but these steps in the fight against the virus and some slight recovery in the markets are a good sign. However, we could see further downward legs before we move into full recovery. Volatility will continue.

Andrew Lloyd