UK: FTSE 100 RESHUFFLE REFLECTS COVID-19 WINNERS AND LOSERS

MARKETS LOOK PAST PROTESTS TO TAKE COMFORT FROM ECB STIMULUS

This week markets have shown political unrest is no match for central bank stimulus. Widespread protests about policing and racism in the US have had little impact on financial markets, while protests in Hong Kong over China asserting greater control have not prevented the Hang Seng posting its best week since 2015.

A generally positive week for equity markets was boosted by a much larger than expected increase in the European Central Bank’s bond purchase programme as it added €600bn to take the total to €1.3trn. Eurozone government bonds also rallied with the yield on Italian and Greek government debt back to the levels last seen in early March. Markets were also supported by improving economic data. Monthly Purchasing Managers’ Index figures were released this week. Overall PMI data show a sharp improvement across economic sectors and regions on the levels seen in April. However, there is still no escaping that May’s figures would be terrible had they not been coming from such a low base.

UK: FTSE 100 RESHUFFLE REFLECTS COVID-19 WINNERS AND LOSERS

The FTSE 100 is up by 27 per cent since 23rd March but, as always, the index masks the contrasting fortunes of its constituents. The quarterly rebalance, which took place this week, is a neat snapshot of companies doing well in lockdown

as well as highlighting those which have seen the biggest setbacks. EasyJet and cruise line operator Carnival are leaving the UK blue chip index. Aerospace engineer Meggitt also drops to the FTSE 250 as does Centrica. The near total shutdown of leisure travel has seen Easyjet and Carnival’s revenue disappear, while Meggitt’s main lines of business include maintenance and support of airlines and the energy sector.

In their place are GVC, Avast, Homeserve and Kingfisher. Gambling stock GVC, whose brands include Ladbrokes, Coral, Sportingbet and bwin, has benefitted from an increase in non-sports betting as idle thumbs seek ways to pass the time in lockdown. Avast is another stock for the times. The online security provider has seen increased demand for its services due to the increase in people working from home.

UK: NO-DEAL BREXIT CONCERNS WEIGH ON STERLING

If being stuck at home for three months is enough to blur the concept of time, the return of no-deal Brexit worries is enough to make you feel like you are stuck in a timewarp. The latest Brexit negotiations ended this week, with little or no

progress, and markets are once more concerned that the UK could be headed for the exit without a trade deal in place.

This week has seen a sharp drop in sterling against the euro as markets look at the consequences of a no deal Brexit on the UK. The UK left the EU in January and the transition period means there is no change in the relationship until 31st December. There is an option to extend the transition period for two years but this has to be agreed by 1st July. There are no further trade talks scheduled before the deadline, although Boris Johnson does have a conference scheduled with EC president Ursula von der Leyen and EU Council president Charles Michel on 19th June.

HONG KONG: HANG SENG SHRUGS OFF POLITICAL PROBLEMS

The Hong Kong stock market has posted its best week in almost five years despite the political storm clouds gathering over the city. Last week saw tensions increase over China’s move to increase its political control of the semi-autonomous region.

This caused local protests as well as international condemnation and raised concerns that the US would scrap Hong Kong’s favourable treatment and could jeopardise the tentative trade agreement between the US and China. The protests have continued this week but the US decision to avoid the most hardline response has helped the Hang Seng to end the week up 7.9 per cent.

UK listed banks HSBC and Standard Chartered also saw their share prices jump this week as they endorsed the Chinese government’s approach. HSBC derives 50 per cent of its revenue from Hong Kong and expansion in China as key to its plans. Standard Chartered is also reliant on Hong Kong for its revenue.