The race out of lockdown

Garry White looks at the events that have shaped equity markets this week (11 to 15 May 2020).

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  1. Garry White

It was a mixed week for equity investors, as markets flipped between optimism and pessimism. Data confirmed that Germany is in a recession and unemployment data indicated that millions of workers were losing jobs at one of the fastest rates in history. Australia faces its first recession in almost 30 years.

However, some investors are hopeful, as several countries have started to ease restrictions on movement and activities, but a second spike in infections is possible if this is done too quickly. Away from the health emergency, America is positioning itself to ignore global consensus and launch a “California-gold-rush” type race to the moon to mine its commodities. Russia and China are not too pleased.

The FTSE 100 was down 2.5% over the course of the week by mid-session on Friday, with the FTSE 250 slipping 5.1%.

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The Covid-19 pandemic could cost the global economy between $5.8 trillion and $8.8 trillion, according to the Asian Development Bank. The figure was more than double last month's forecast and equates between 6.4% and 9.7% of global GDP.

The UK economy shrank by a record 5.8% in March month-on-month, which contained just over a week of the UK’s lockdown, which began on 23 March. In the first quarter, GDP contracted by 2% quarter-on-quarter, its worst performance since the financial crisis. Nevertheless, both figures better than economists had expected.

China's industrial production rebounded by almost 4% in April helped by Beijing’s push to reopen the economy, but investment and consumption continued to fall amid sluggish domestic demand. This hit to consumer confidence as people exit lockdown was observable in the country’s retail sales data, which showed total sales fell 7.5% in April, better than the 15.8% decline seen in March, but still worse than the 7% drop expected by economists.

The German economy shrank 2.2% quarter-on-quarter in the first three months of this year as the Covid-19 pandemic pushed it into recession because the figure from the final quarter of 2019 was revised lower, indicating the economy shrank then too. A recession is defined by two successive quarters of contraction. It was the biggest quarterly fall since 2009.

Although the Covid-19 crisis did not hit Japan as hard as many other countries, it has still done significant damage to its economy. The Jibun Bank Flash Japan Manufacturing Purchasing Managers' Index (PMI) slumped to a seasonally adjusted 43.7 points, its lowest since April 2009. A reading below 50 denotes a contraction in a country’s manufacturing sector, while anything above 50 indicates growth.


Rishi Sunak extended the government’s Covid-19 wage subsidy scheme for workers until the end of October. The UK Chancellor is trying to prevent a wave of job losses in the summer when the scheme ends, implying that the crisis will not be over soon. In a surprise announcement, Mr Sunak said the unprecedented scheme would continue until the autumn, despite its eye-watering cost. With 7.5 million workers currently having their wages paid from government coffers, the Institute for Fiscal Studies said the total cost of the scheme could now amount to more than £80bn.

The UN’s International Labour Organisation forecast that 1.6 billion informal economy (essentially self-employed) workers could suffer “massive damage” to their livelihoods. In the second quarter of 2020, Covid-19 may cost the equivalent of 305 million full-time jobs, it said.

Almost 37 million American workers have made new unemployment claims during the last eight weeks. It is now expected that an easing of Covid-19 restrictions in many US states could mean the unemployment rate could be levelling off.  Initial jobless claims fell to just below 3 million in the week ending 9 May, down slightly from 3.2 million in the previous week. While it was the smallest weekly increase since mid-March, it is still several times larger than normal.

India's unemployment rate increased to 23.5% in April, as 114 million people lost their jobs in its Covid-19 lockdown so far. The total Indian workforce is around 400 million people, so more than 1 in four workers have lost employment.

Australia’s unemployment rate jumped a full percentage point in a month, rising to 6.2% from 5.2%. Prime Minister Scott Morrison warned more losses would follow.

The South African government said that around 3 million jobs were now at risk in the country, even if the pandemic was contained quickly, while a slow recovery could see 5 million job losses. A worst-case scenario would push the unemployment rate to more than 50%, from its current rate of just under 30%.

The course of Covid-19

Global coronavirus deaths passed 300,000 on Thursday as infections approached 4.5 million, according to a Reuters tally of global; data, with the US seeing more than a quarter of all fatalities.

The British government entered talks with Swiss pharma group Roche about buying an accurate Covid-19 antibody test, following the European Union and the United States, which has already given preliminary approval to the tests. Mass antibody testing kits are being considered by many countries to speed-up the reopening of economies sent into a recession by lockdowns and to introduce more tailored social-distancing measures.

Britain eased lockdown measures slightly this week which marked the start of what was likely to be a long process, which may involve measures being tightened should infections spike once more. Some people in England who cannot work from home were allowed to return to their workplaces, but the fact government urged people to avoid public transport too caused some confusion. Under the new rules in England, people can now spend more time outside, move home, play golf and garden centres have been allowed to reopen.

Countries still on lockdown are watching countries that are starting to relax social distancing rules to see if any lessons learned can help re-opening their own economies. For example, the Baltic states of Lithuania, Latvia and Estonia opened their borders to each other at the stroke of midnight on Friday, creating the first "travel bubble" within the EU. New Zealand and Australia have discussed the possibility of creating a similar "Trans-Tasman bubble," but have not set a date for its start.

On Thursday, Brazil and Mexico reported record one-day rises in new Covid-19 cases. This came as the leaders of both countries intensified attempts to reopen their economies, despite the infection spreading rapidly in Latin America. Brazil’s right-wing populist President Jair Bolsonaro and Mexico's leftist leader Andres Manuel Lopez Obrador both first argued that the virus wasn’t a problem and are trying to open their economies as the infection spreads, bucking scientific opinion.  

A model by the World Health Organization (WHO) forecast almost a quarter of a billion people across 47 African countries will catch Covid-19 over the next year, but the result will be fewer severe cases and deaths than in the US and Europe. That’s because of the demographic profile of Africa, where there is a much larger proportion of the young in society and the infection hits older generations harder. However, it warned that it is likely to overwhelm already-stretched health services.


Remember Brexit? Talks between Britain and the EU about their new trade relationship now the UK has left the bloc made little progress this week, reports from Brussels suggested. They noted persistent differences in key areas which could make striking a deal by the end of the year difficult. These were the penultimate talks before the end of June deadline to agree on an extension of these talks and delay the end of the transition period. The UK government continues to insist that an extension will not be sought.  

The rhetoric from the US President against China and its handling of the Covid-19 crisis stepped up a gear this week. Donald Trump said he was very disappointed with China’s failure to contain Covid-19 in an interview with Fox Business news. He also said he had no interest in speaking to President Xi Jinping right now – going so far as to suggest he could even cut ties with the world's second-largest economy.

A dispute between Australia and China means another front in the global trade war may about to be opened. Canberra’s backing Donald Trump’s calls for an investigation into the origins of Covid-19. China has already suspended meat imports from at least four Australian abattoirs and China’s Ministry of Commerce gave Australia’s barley producers 10 days to respond to an anti-dumping investigation that’s been conducted into Australian grain imports since 2010, threatening to slap them with tariffs of up to 80%. Australia is expected to enter its first recession in 29 years during 2020. Much of the boom over the last few years has been driven by China’s insatiable desire for commodities such as iron ore. If the dispute escalates, Australia’s economy could be hit hard.


US oil prices, as determined by the West Texas Intermediate (WTI) futures contracts, jumped higher after the International Energy Agency forecast lower global stockpiles in the second half of 2020. Crude prices have ticked up in the last two weeks as some countries relaxed restrictions and lockdowns to allow factories and shops to reopen but worries remain over a second surge in Covid-19 infections in coming months. Brent crude prices rose by about 2% over the week to trade at around $31.60 a barrel by mid-session on Friday.

American regulators do not want a repeat of the situation seen with last month’s WTI oil futures contracts, which crashed into negative territory for the first time in history. A lack of oil storage facilities meant nobody wanted to hold the contract on expiry and take delivery of the oil. The US Commodity Futures Trading Commission (CFTC) wrote to exchanges, brokers and clearers in unusually forthright terms to remind them of their obligation to ensure orderly trading and commodity pricing. The CFTC’s letter provided a detailed restatement of basic obligations. In effect, this was an extraordinary public warning to the Chicago Mercantile Exchange (CME), which operates the WTI futures contract. The June futures contract expires next week on 19 May.  


In the 1960s, political rivalries between America and Russia propelled humanity to the Moon. Today Washington’s main rivalry is China – and the Moon is in their sights again. A decision by the Trump administration could result in a “California gold rush” for the Moon’s commodities. Russia and China are not pleased.  I look at the new Moon race here.

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