UK: FTSE 100 SEES BEST QUARTER IN A DECADE
Data Sourced from FE Analytics, and Bloomberg Finance LP
UK IS GETTING BACK TO NORMAL BUT THE US RESPONSE PUTS QUICK RECOVERY IN DOUBT
This week we got to see detailed Covid-19 infection figures for all counties in the UK. Hopefully large regional differences can be eliminated through regional lockdown measures, but it does seem that the virus is on the backfoot. This means reopening the economy might actually be successful, as consumer confidence matters more than easing restrictions. Even though there have been stumbles on the way, we are perhaps approaching the goal line and joining countries like Korea and Germany in finding a way to get back to normal alongside the coronavirus.
Elsewhere, things in the US are going from bad to worse as the number of infections has exploded. There are plenty of caveats around test numbers, the vulnerability of those infected and whether death rates will follow the same trajectory, but it is still very worrying. Any talk of a V-shaped recovery was based on a swift control of the virus. That is now completely off the table. How far fiscal and monetary policy can be pushed to contain the damage is now the question. While the Fed has proved willing, the government has lacked coordination and urgency.
UK: FTSE 100 SEES BEST QUARTER IN A DECADE
The speed of the rebound in equity markets has been quite astonishing. The UK’s FTSE 100 index had its best quarter since 2010, returning 8.8 per cent for the three months to June. But, welcome as the rebound is, it should also be kept in
context. The rebound came immediately after the biggest quarterly fall since 1987 and the FTSE 100 remains down around 17 per cent this year on a total returns basis.
It also needs to be seen in context of other equity markets. The US has continued to outperform all other major equity markets and posted its best quarterly return since 1998. But the UK has also lagged Europe, Japan and Emerging Markets – both during the sell-off and in the recovery experienced since. This underperformance of the last three months has been during a period of weaker sterling against the dollar and euro – which would normally benefit the FTSE 100 by inflating the value of overseas earnings.
ECONOMY: COMPARE AND CONTRAST EU AND US UNEMPLOYMENT IN 2020
US monthly jobs data released this week has generated more positivity in financial markets as, for the second month in a row, the numbers were substantially better than expected. The US reported 4.8m new jobs in June compared to 3.2m
predicted as the unemployment rate fell to 11.1 per cent from 13.3 per cent in May.
The US numbers reflect a difference in how coronavirus job protection measures have been implemented in different sides of the Atlantic. In the UK and Europe, furlough schemes have kept employees in work with the state picking up the cost of wages. In the US, employees are being laid off and then claim support directly from the government. The result is a wild fluctuation in unemployment as workers are fired and quickly rehired when economies reopen. In contrast, EU monthly unemployment data out this week shows the unemployment rate effectively unchanged this year. Across the EU unemployment in May was 6.7 per cent, up from a record low of 6.4 per cent in March.
TESLA: IS ELON MUSK’S ELECTRIC CAR MAKER WORTH THE HYPE?
Tesla’s share price performance is beginning to look like the trajectory of one of Elon Musk’s SpaceX rockets. This week Tesla overtook Toyota to become the most valuable car maker according to market cap as its shares increased a remarkable
25 per cent to the end of Thursday. This caps a three year run which has seen its shares increase 250 per cent. The latest surge in its share price was caused by the company exceeding its quarterly sales target despite the coronavirus shutdown.
Tesla has become the largest listed car maker without ever posting an annual profit. Last year Toyota sold more than 10 million cars and generated sales of £281bn. Tesla ended 2019 with sales of 367,000 and revenues of $24bn causing yet more questions about how much of Tesla’s growth is down to hype. Tesla is proving it can mass produce electric cars and it is also leading the way in clean energy technology but it has to produce considerable sales growth to prevent its share price coming back down with a bump.
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