Global markets have risen this week as new coronavirus cases fell in the US and Donald Trump signed an executive order ex- tending extra unemployment benefits to millions of Americans, albeit at a lower rate of $400 a week. Although the order could face a legal challenge from Democrats who are insisting on higher payments, markets rose on the news. The S&P500 briefly rose above its record high set in February, the oil price rose but the price of Gold dropped sharply as bond yields rose.
UK shares closed up on Monday, with the FTSE100 rising by 0.3%, despite tensions rising between the US and China. The Dow and S&P500 both closed up but the Nasdaq dipped. The FTSE100 closed up by 1.7% on Tuesday, buoyed by positive news on vaccines as several are now in final trials and some of the producers are already manufacturing doses. Russia said it had approved its own vaccine for use which boosted sentiment, but it is yet to undergo final trials.
US indices fell on Tuesday, with the Nasdaq losing 1.69%. Big tech stocks helped drag the Dow and S&P500 lower as vaccine hopes weighed on tech stocks, which have benefitted so much from lockdown life. There were more gains in the UK on Wednesday with the FTSE100 rising by more than 2% despite historically bad GDP data. UK shares fell on Thursday, with the FTSE100 losing 1.5% amid worries about unemployment and Brexit. In early trading on Friday, shares were heading down.
Company focus: Domino’s Pizza Group
Domino’s Pizza reinstated its deferred dividend but warned that uncertainties surrounding further lockdowns later in the year meant it may suspend its final dividend. The UK’s largest pizza chain saw a fall in orders during lockdown as it stopped in-store collection and changed its menu to make cooking safer. Orders for deliveries increased by 12% in the six months to 28 June, but collection orders fell by 44%, resulting in net decline of 5%. The company’s underlying profit before tax fell 4.6% to £47.6m, de- spite sales improving by 5.5% to £628.9m.
The option to select your own customised toppings, its stuffed crust, and cheeseburger pizza were among popular items that were dropped because they are difficult to make with strict social distancing regulations in place. Customers ordered a higher pro- portion of sides and desserts which generated additional sales, but dented the group’s profit margins. The company also spent £3.4m on face masks and “contact free delivery boxes” that were specially designed for leaving on customers’ doorsteps. Domino’s chief executive Dominic Paul said. “While trading in the first few weeks of the second half has been encouraging, it is too early to conclude on how consumer behaviour will evolve.”
The UK economy is suffering the worst recession since records began, according to data from the Office for National Statistics (ONS). The economy contracted by 20.4% in the second quarter, following a 2.2% contraction in the first quarter. Two consecutive quarters of contraction is the official definition of a recession. Economists polled by Reuters had expected a 20.5% contraction, so the fall was not exactly unexpected, although the fact that the UK has suffered far more than any comparable nation is something of a surprise.
The UK contracted by twice as much as the US in the second quarter, which saw GDP fall by 10.6%, and far worse than the eurozone, which contracted by 12.1%.
There are several reasons for the UK’s particularly poor showing. Other countries, such as Spain, Italy and France, initiated their lockdowns more quickly than the UK, which resulted in more of their economic hit landing in their first quarter. The UK then left the lockdown in place for longer than other countries, and the decision to keep schools closed has also had an impact, forcing many parents to stay home rather than work.
Finally, the services sector is the largest part of the UK economy and relies disproportionately on face-to-face contact in places such as bars, restaurants and other locations that were hit hard by social distancing.
There was some good news. June saw an 8.7% rebound across the economy. This lends credence to the Bank of England’s forecast for an 18% expansion in GDP in the third quarter, although it then expects a further slowdown as the furlough scheme comes to an end.
There was also disappointing news on employment this week, as the ONS said 730,000 fewer people were employed in July compared to March, based on data from HMRC.
The ONS said that the unemployment rate remained steady at 3.9% in the three months to June because the figure did not include 300,000 people who had lost their jobs but were not actively searching for a new position. Economists say the picture will inevitably deteriorate. Listed companies have already announced 100,000 redundancies but most are still work- ing their notice, while the end of the government’s furlough scheme in October is expected to herald a sharp increase in jobless claims. The ONS said around 5m people were still on the furlough scheme in June.
There was better news in the US this week, where initial unemployment claims rose by the smallest margin of the pandemic so far, boosting hopes that its recovery remains on track.
Back in the UK, the property market has seen a flurry of activity which has boosted prices across the country. The activity has been driven largely by the government’s holiday on stamp duty on homes worth up to £500,000, which saves buyers up to £15,000. Respondents to the survey by the Royal Institution of Chartered Surveyors (RICS), said new enquiries and new sales were booming but they were concerned that the market could slump. Simon Rubinsohn, chief economist at the RICS, said: “…some contributors are now even referencing the possibility of a boom followed by a bust