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Market roundup
Share markets pushed higher this week as encouraging news emerged about possible vaccines, followed by a better-than-expected jobs report in the US on Thursday. It was enough to renergise the bullish mood, despite the worsening Covid situation and renewed lockdowns in parts of the US.
On Monday, UK equities finished higher, with the FTSE100 up by 1.1% despite growing concerns about the US with numerous states setting new records for infections. BP was a standout gainer, up 3.4%, after agreeing to sell its petrochemicals division for $5bn. Shares in the US and Europe also made healthy gains.
UK shares fell on Tuesday with the FTSE100 down by 0.9% as concerns about surging US coronavirus cases weighed heavily. Wednesday was another down day in the UK, with the FTSE100 shedding 0.2%, although markets in Europe and the US were mixed as investors took heart from encouraging data from one of Pfizer’s vaccine trials. On Thursday, markets rebounded strongly on better than expected jobs data in the US; the world’s largest economy added 4.8m jobs in June, taking the unemployment rate down to 11% from 13.3% in May. The Dow closed up by 0.36% and the FTSE100 gained 1.34% to close at 6,240.36. Shares in China hit a five-year high on Friday as the country continues its steady recovery, although likely increasing tensions with the US ahead of this year’s presidential election have tempered enthusiasm.
In early trading on Friday, UK shares were heading down.
Company focus: J Sainsbury’s
There was much to cheer in Sainsbury’s trading update on Wednesday, with a near doubling of its online orders from 370,000 in March to 650,000 a week in June. Grocery sales rose by 10.5% in the 16 weeks to 27 June although clothing sales fell by a quarter during the period as shoppers focused on essentials during the lockdown. Sales also rose sharply at Argos, boosted by an increase of almost 80% in home deliveries thanks to soaring demand for home office products, garden toys and cooking equipment. However, along with its big supermarket rivals it warned there would be no profits growth this year. The company warned that trading this coming winter was expected to be “challenging”, with a potential recession reducing demand for non-food items sold by Argos.
CEO Simon Roberts said: “The situation ahead is very unpredictable. We have made sure the business is ready to handle that.” To remain competitive, Sainsbury’s had lowered prices on 200 products in recent weeks and extended its “price lock” promise to 1,000 items. Crucially, however, while positive developments like increased online shopping were likely to stick, the company had incurred huge costs to facilitate the shift in operations.
Roberts said Sainsbury’s had taken on 25,000 extra staff to help with
increased online orders and set up collection points outside stores. Sources: Sharecast, company reports and accounts
Economic roundup
There has been mixed news on the coronavirus front this week, with the US breaking new records for infections (over 50,000 a day) and reintroducing limited lockdowns. That was tempered by encouraging developments on vaccines from Pfizer and Moderna, although the Oxford University vaccine, in partnership with Astra Zeneca, is the furthest advanced, with large scale human trials already underway and soon to be expanded in the US and South Africa. It is hoped that a vaccine could be mass produced later this year or early 2021, although reports suggest that the first vaccines may simply “alleviate symptoms” rather than prevent the disease altogether.
Earlier this week there were big job cuts announced by retailers and airlines that do not bode well for the labour market when the government’s furlough scheme is unwound. John Lewis, Harrods and Arcadia warned of thousands of jobs to go between them, while SSP Group, the company behind brands such as Upper Crust and Caffè Ritazza, announced up to 5,000 job losses, and thousands more in danger at TM Lewin, Bensons for Beds and Harveys.
There was better news from the manufacturing sector, both in the UK and overseas, as the decline in output slowed again in June, suggesting a gradual improvement. In China, which is ahead of the curve on the virus, the Purchasing Manager’s Index (PMI) hit a six-month high last month, with a reading of 51.2, up from 50.7 in May. Any reading above 50 indicates business activity is increasing.
In the UK, the slowdown in manufacturing eased in June as the IHS/Markit PMI showed a small month-on-month increase in output, with a reading of 50.1 in June from 40.7 in May. It does not mean the sector is anywhere near back to normal but merely that it has stopped contracting, with output rising as the lockdown was eased. It is the first sign of growth in the sector since February, and optimism among respondents hit a 21-month high. Factories in the US also showed an improvement in June. The Institute for Supply Management’s Purchasing Managers’ Index produced a reading of 52.6 in June, up from 43.1 in May. But economists stressed this is an increase from a “very low level”.
The Bank of England said Britain’s economy looked on course to have shrunk by around 20% in the first six months of 2020 — a smaller decline than it had first feared, but still one of the biggest annual drops in 300 years. While the second half will inevitably be better given an easing of lockdowns, it could still be a slow return to anything like normal. A survey by the Bank of England this week showed that UK companies expect their sales to fall by a quarter over the next here months, even as the country emerges from lockdown. The figure, although worrying, was an improvement on the results in the April- June quarter, when companies forecast sales to fall by an average of 38%. According to the survey, unemployment is expected to peak at the end of this year at over 11%, from the current level of 3.6%.
Finally, the UK property prices suffered their first annual decline since 2012 over the past 12 months, according to Nation- wide Building Society. It said that the average house prices dipped 0.1% in the year to June. On a monthly basis, prices fell by 1.4% in June, down from May’s decline of 1.7% which was the biggest monthly drop in 11 years