Last Week in the City: Gold and US GDP fall make history

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook this week ending 31 July.

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  1. Garry White

The gold price hit a new record this week, as concerns about the spread of Covid-19 in the US and the weakening dollar resulted in a rush into the safe-haven asset. Jerome Powell, Chair of the US Federal Reserve, said the data was pointing to a slowdown in the recovery, as the US economy slumped by almost a third in the second quarter. However, the US central bank said it would keep interest rates low and do everything it could to aid a recovery. Tensions between the UK and China also appeared to deteriorate further.

The FTSE 100 was down 2.2% over the course of the week by mid-session on Friday. The FTSE 250 was down 1.4% from the prior Friday.

Investing for income in a post-Covid world

Many companies have withdrawn or cut dividends to help deal with the Covid-19 pandemic. Jon Cunliffe, Chief Investment Officer, looks at the strategy income seekers need to adopt here.

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Cyberwar: the biggest threat this century? In this episode, we discuss the increase in international cyber-attacks and what this means for technological market growth and the future of cyber security. Listen here.

Back to Business: Adaptation and Resilience Post-COVID. We discuss the decisions and actions of businesses to adapt and remain resilient within these uncertain times. Listen here.

Let's talk about markets: Has veganism become an unstoppable investment trend? In this episode we discuss whether vegan investing is a fad or here to stay. Listen here.

The radio page with all previous recordings can be found here.

Covid-19

The investment trends accelerated by Covid-19: Garry White looks at some of the long-term consequences of the ongoing pandemic here.

Britain reported its highest number of new COVID-19 infections in more than a month. Lockdown was tightened in the north of England after transmission rates increased. The areas include Greater Manchester, parts of West Yorkshire and East Lancashire. People from different households will not be allowed to meet each other indoors.

The UK government decision to impose a 14-day quarantine on everyone arriving from Spain was "unjust", the country's prime minister has said. Pedro Sánchez said tourists in most Spanish regions would be safer from coronavirus than in the UK, and he was hoping Britain would rethink its move.

The epicentre of the pandemic in the US showed signs of shifting to the Midwest, moving into Ohio, Kentucky, Tennessee, Missouri, Kansas and Nebraska. This was "because of vacations and other reasons of travel," Dr Deborah Birx, co-ordinator of the White House virus task force, said.

Australia's Victoria state recorded its second-highest day of new infections on Friday, one day after logging record deaths, as the state's leader flagged the prospect of more rigorous steps to contain the spread of the disease.

AstraZeneca said that good data was coming in so far on its vaccine for Covid-19, already in large-scale human trials. This is widely seen as the front-runner in the race for a vaccine against the novel coronavirus.

The European Union (EU) warned member states of the risk of shortages of syringes, wipes and protective gear needed for potential mass vaccinations against Covid-19 and urged them to consider joint procurement.

Economics

Sterling rose to its highest level against the dollar in almost five months as the US currency continued to weaken. The dollar slumped to a three-year low against the euro and a basket of other currencies overnight as fears grow that the US economic recovery is running out of steam as Covid-19 spreads.

The US economy shrank by an annual rate of 32.9% year-on-year between April and June, its sharpest contraction since the second world war.

The US Federal Reserve left interest rates near zero and vowed to use all its tools to support the recovery from an economic downturn that Chair Jerome Powell called the most severe “in our lifetime.”

Mr Powell said that the sharp acceleration in Covid-19 infections in the US since mid-June was restraining the ability of the economy to recover from the historic contraction in economic activity in the second quarter. “On balance, it looks like the data are pointing to a slowing in the pace of the recovery. But I want to stress it is too early to say both how large that is and how sustained that will be,” Mr Powell said. “The measures taken to keep it in check are critical,” Mr Powell added.

German GDP fell a seasonally adjusted 10.1% quarter-on-quarter, which was worse than the 9% drop forecast by economists. Italy’s economy shrank 12.4% in the second quarter from the previous three months, but the fall was less severe than many analysts had predicted. The Spanish economy shrunk 18.5% and the French economy contracted 14% in the second quarter when both countries were in lockdown.

Geopolitics

The relationship between the UK and China has been "seriously poisoned", Beijing's ambassador to London said. Rebutting criticism of the Chinese government, Liu Xiaoming said the UK was at a "critical historical juncture" in its future with his country. The ambassador urged Britain to "resist pressure" from the US to condemn China.

US President Donald Trump raised the idea of delaying the 3 November elections, an idea immediately rejected by both Democrats and his fellow Republicans in Congress – the sole branch of government with the authority to make such a change. The call came about 30 minutes after the dire US GDP data was released.

Hong Kong leader Carrie Lam was expected to announce the postponement of the 6 September city assembly elections because of a spike in Covid-19 cases, putting off what the pro-democracy opposition hopes would be its chance to win a historic majority.

There appeared to be no improvement in US-China relations, but last week’s closure of embassies in Houston and Chengdu weighed on investors’ minds.

Brexit

The Alternative Investment Market (AIM)

Last month London’s junior market, AIM, celebrated its 25th birthday; but do investors understand the market – and how many are celebrating happy returns? James Rae explains all here.

Technology

Huawei became the biggest vendor of smartphones in the world for the first time. It took the top spot by shipping 55.8 million devices in the last quarter, overtaking Samsung's 53.7 million, according to analytics company Canalys.

Samsung Electronics results were boosted by demand for microchips as millions of people worked and were educated at home during the pandemic. Second quarter operating profits rose 23% year-on-year. Strong demand for computer chips pushed up prices on the global market.

Shares of Apple, Amazon and Facebook surged in extended trading on Thursday, with Alphabet also climbing, as upbeat quarterly reports from the Big Tech quartet boosted the sector. Together, these four companies account for nearly a fifth of the S&P 500's stock market value.

The heads of Amazon, Apple, Facebook and Google owner Alphabet appeared on Capitol Hill to defend their companies against claims they abuse their power to squash competitors. Several Republicans made allegations of anti-conservative bias on social media.

European insistence on a digital service tax (DST) is being resisted by US authorities. Tariff against its allies are a real possibility. Garry White looks at the DST issue here.

Energy

Brent crude prices slipped 0.5% over the week by mid-session on Friday to trade at about $43.65 a barrel, with the price up over the month of July as the dollar weakened.

Mining and commodities

The gold spot price hit a record high of $1,980.57 a troy ounce this week, as the US’s deepening Covid-19 crisis sent the US dollar tumbling further and encouraged anxious investors to choose the precious metal as a safe haven.

Retail

Burberry launched a venture with China's tech giant Tencent to launch a luxury concept store using social media interactions. The British retailer opened its first "social retail store" on Friday in Shenzhen, China's technology hub. The companies want to roll the concept out across Burberry's network in China.

Autos

Nissan's shares plunged by 10% in Tokyo trading on Friday after warning that it would see a record annual loss. Japan's second largest carmaker said it expects a $4.5bn (£3.5bn) operating loss this year as the pandemic hindered its turnaround efforts.

Travel

British Airways owner IAG said it will take until at least 2023 for passenger levels to recover from the impact of the pandemic. The group posted a loss of €4.2bn (£3.8bn) in the first half of the year as demand for air travel collapsed. Passenger numbers were down 98%, and the group plans to cut 12,000 jobs. The statement came as it launched a £275m rights issue.

Property

UK house prices returned to growth during April, according to the latest figures from the Nationwide house price index. Annual price growth bounced back to 1.5% from –0.1%, while month-on-month growth was 1.7%.

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