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Market roundup
Share markets have been mixed this week as equities in China have surged as confidence in its recovery increases. The Shanghai Composite has increased by 11.6% in the past week, while most other markets have been struggling for traction amid a flow of downbeat Covid-related news.
The oil price has slipped on the prospect of renewed lockdowns in the US, while the price of gold, perceived as a safe haven and hedge against inflation, rose above $1,800 for the first time since 2011.
The week started on a positive note, with the FTSE100 rising by 2.1%, buoyed by the positive lead from China. Housebuilders were big gainers after the leak of Rishi Sunak’s cut on property stamp duty, officially announced on Wednesday. Indices in Europe and the US saw solid gains too. Markets fell on Tuesday, with the FTSE100 closing down 1.53% at 6,189.00 after the European Commission slashed its growth forecasts. European equities also fell and there were sharp losses on all US indices as the US enters earnings sea- son.
The FTSE100 closed down again on Wednesday, losing 0.55%, after Rishi Sunak’s summer statement failed to instil much confidence, although US indices managed to eke out gains. UK shares closed sharply down on Thursday as coronavirus worries weighed heavily. Reports suggested 42 of the 50 US states reported an increase in cases on Wednesday. The FTSE100 closed down by 1.73% at 6,049.62 and in the US, only the tech-heavy Nasdaq finished in pos- itive territory. In early trading on Friday, UK shares were heading up.
Company focus: Persimmon
Housebuilder Persimmon reported a better than expected increase in sales and construction levels this week. The UK’s biggest house- builder by market value revealed that revenues fell by around a third to £1.19bn in the first half of 2020 compared to a year earlier due to the lockdown stopping construction. But it said its order book is up 15% to £1.86bn and activity at its construction sites has returned to normal levels. It said it had returned to full site capacity ahead of its largest rivals because it kept staff working and did not use the government’s furlough scheme. “Our sales teams took 1,600 reservations over the lockdown. We continued to do site layouts and look at land opportunities, continued to work as well as we could from home . . . I believe in a bit of self-help,” said Dave Jenkinson, chief executive.
New home completions fell to 4,900 from 7,584 in the same period in 2019 as the lockdown forced site closures, but the average selling price increased to circa £225,050 from £216,942 which the company said “reflected resilient selling prices throughout the period”. In addition, Persimmon said demand has been strong in the six weeks since its sites reopened, with weekly average sales reservations around 30% higher than the same period a year ago. Shares in Persimmon rose 6.4% on the day.
Economic roundup
UK Chancellor Rishi Sunak unveiled a £30bn package of tax cuts and spending incentives in his summer statement this week in a bid to maintain the gradual recovery in the UK economy throughout the rest of the year.
Meanwhile, debates are continuing in Europe and the US about how to extend stimulus measures. Both are important for investment markets. In Europe, the €750bn package made up of loans and grants, already agreed by Germany and France, is meeting its fiercest resistance in the Netherlands, where the Prime Minister Mark Rutte is insisting that the entire sum should be in the form of loans that need to be repaid. The package is due to be debated at a summit next week.
US coronavirus cases surge and stimulus on knife edge
In the US, there were a record 60,000 new coronavirus cases on Wednesday and the death rate has also started to rise for the first time since cases began spiking in southern and western states.
Meanwhile, a key part of March’s $2trn stimulus package is being debated. The $600-a-week in extra unemployment ben- efits introduced in March, which is paid on top of each state’s existing unemployment benefits, is due to end on July 31, meaning a potential cliff-edge income drop for around 20m unemployed Americans.
Many analysts fear that the sudden cut will result in more unemployment as spending falls and economic activity drops; the US economy relies on consumer spending for 70% of its GDP. Other parts of the world are also suffering from record numbers of coronavirus cases and renewed lockdowns, including parts of Australia, Japan and Hong Kong.
Outlooks revised down
The UK unemployment rate could hit 15% if there is a second wave of infections, according to the OECD.
Even absent of a second wave, it says unemployment in the UK will hit 11.7% by the end of the year, from the current level (estimated to be 3.9%), as the job retention scheme is wound down. The forecast was released the day before Sunak’s summer statement so does not factor in any potential impact from the job-support initiatives he announced.
On the same day, the European Commission (EC) said Europe is facing a deeper-than expected recession in 2020, while the UK economy is expected to shrink by almost 10% this year. It is forecasting an 8.3% drop in GDP for the 27-member EU in 2020 followed by a 5.8% rebound in 2021.
There was some encouraging news in the UK, however. The UK construction sector expanded at the fastest rate since 2018. The IHS Markit/Cips UK Construction purchasing managers’ index rose to 55.3 in June, from 28.9 the previous month, well above the 50 level that means activity is increasing.
There was also improving news on jobs in the US, with initial jobless claims falling to a four-month low of 1.31m over the last week. The number of continuing claims fell by 698,000 to 18.06m.