14 May 2020
In the UK, GDP fell by 5.8% month-on-month in March, though was a bit better than expectations of -7.7%. As expected, output fell most in the accommodation and food services sector. On a quarter-on-quarter basis, GDP fell by 2%, also better than expectations, though the drop in Q1 nearly exceeded the biggest decline seen in the last recession. At the same time, the trade deficit increased sharply, partly due to a pick-up in imports. Chancellor Rishi Sunak announced that the Coronavirus Job Retention Scheme, by which the government pays the wages of workers on furlough, will be extended to October. The scheme now covers approximately 7.5m people, or a quarter of the workforce, costing £14bn a month. However, he went on to say that the government will ask companies to “start sharing” the cost of the scheme from August. Prime Minister Boris Johnson
outlined plans for the easing of the lockdown, prompting concerns that the government's strategy is running ahead of the country's ability to test and contact-trace. Equities reacted relatively well, however, with the FTSE down only 0.5% over the past week, helped by the pound weakening against other major currencies and outperforming other European indices by about 2%.
In the US, COVID-19 cases continued to rise at a rapid pace, even as states, encouraged by President Trump, begin to ease lockdown measures. Dr Anthony Fauci, one of the lead members of the Trump Administration's White House Coronavirus Task Force, and considered one of the most trusted medical figures in the country, testified that reopening the economy too soon would result in “needless suffering and deaths”. The number of US employed fell 20.5m, a bit less than expectations. The job losses were concentrated most in leisure and hospitality, down 7.7m, with education and health down 2.5m, retail down 2.1m, business services down 2.1m, and manufacturing down 1.3m. Even government jobs collapsed, falling 980,000. The unemployment rate jumped to 14.7% from 4.4%. Inflation in April fell 0.8%, in line with expectations, dragged down by a 20.6% plunge in gasoline prices. But this was partly offset by a 2.6% increase in prices for food at home, the biggest rise in 46 years, and meat prices rocketed 10.1% thanks to reduced supply as meat processing plants grappled with Covid-19 outbreaks.
In Shulan and Wuhan, China, new COVID-19 outbreaks came after lockdown measures had been eased in recent weeks. In South Korea, too, there have been fresh outbreaks after an easing of lockdown measures. Worrying, these have been concentrated in areas of the capital, Seoul. The US-China relationship continues to see-saw, with trade representatives from both sides reaffirming their commitment to Phase One of the trade deal, despite there being little chance that China can hit the 2020 deal target now. President Trump and his administration, however, upped the anti-China rhetoric and domestic political considerations look increasingly likely to steer Trump to jettison the deal and push harder on the “blame China” strategy for the COVID-19 carnage in the US. Both sides engaged in a tit-for-tat expulsion of journalists.
Markets seem to be torn between, on the one hand, reacting positively to the news of lockdowns easing but, on the other, reacting negatively to the fear of a “second wave”. Asian markets fared better than the US, with the Nikkei up 3% over the last week, though the US technology sector continues to outperform, down only 1.3% compared with the 2.6% decline in the Dow.
Tesla defied an Alameda County ruling to re-open its California manufacturing plant this week, with CEO Elon Musk daring officials to “arrest him”. The Tesla Factory in Fremont, California manufactures the Model S, Model X and Model 3 employing 10,000 people.
Struggling American department store chain J.C.Penney Company is in discussions this week for $450m in financing to stave off bankruptcy. The company on April 15th missed a $12m interest payment, but has a 30-day grace period, which ends this week.
Uber Technologies has this week made an offer for Grubhub, an American online and mobile prepared food ordering and delivery marketplace. Uber and Grubhub are currently the second and third-largest US meal delivery companies by market share, and together they would represent the biggest US meal delivery company by market share.
Liberty Global and Telefonica agreed last week to merge their UK operations into the country’s leading fixed-mobile communications provider. The 50-50 joint venture brings together Virgin Media and O2, and is expected to deliver substantial synergies, that will support Virgin Media’s giga-ready network and O2’s 5G mobile deployment.
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