Market Update – 8th July 2020.

There isn’t any particular negative news to justify yesterday’s (7 July 2020) and today’s global equity market weakness, other than news that Brazil’s President, Jair Bolsonaro, tested positive for coronavirus, coupled with speculation that the US wants to undermine the Hong Kong dollar peg to the US dollar – which would potentially further deepen the rift between the US and China.

Additionally, while a number of Fed policymakers have talked about the uncertainty and negative economic impact caused by the coronavirus, they have also been dovish about monetary policy (i.e. it will remain loose for some time).  Furthermore, yesterday both the Fed Vice Chair, Richard Clarida and Loretta Mester, the President of the Cleveland Fed, said Fed policymakers would increase QE if the US economy needed more support.

In the UK today, Rishi Sunak, Chancellor of the Exchequer, has just this minute sat down after providing his Summer Economic Update.

His objective was clear:  kick start the UK economy in order to prevent mass unemployment, as there is an obvious concern that companies will simply make employees redundant once the furlough scheme comes to an end in October (in fact an unemployment rate of 10%+ is not inconceivable).

Although it wasn’t particularly substantial (it was a brief statement lasting less than 30 minutes – his Autumn Statement will be much more important as the furlough scheme would have ended and we will be close to the end of the Brexit transition period), it will go some way to helping our economic recovery from the coronavirus.

He announced that employers could claim £1,000 for each employee who returns from furlough and copied Alistair Darling, who was the Chancellor under Gordon Brown in 2008, and cut VAT.

However, unlike in 2008 when VAT was cut across the board from 17.5% to 15%, Rishi Sunak targeted his reduction at the hospitality and tourism sector, cutting VAT to 5%.  While this is unlikely to get passed on to customers, it will allow companies to keep more of the money they take – and this, coupled with the meal discount scheme, should also help in the retention of employees – especially if we all holiday in the UK this summer (the leisure and hospitality sector is a significant employer).

With the exception of share prices in the listed pub and restaurant companies and the housebuilders (after it was announced that the stamp duty threshold would be temporarily increased to £500,000), it has had little impact on the FTSE-100, which is currently down around 20 points, or 0.33%, or the pound which is steady at $1.26.

Investment Management Team

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