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Market roundup
Global share markets have largely risen this week as several vac- cines produced encouraging results in early trials. A vaccine from Oxford University appears to have stimulated antibodies and T-cells in trials on 1,000 volunteers. T-cells are important because they can last for years while virus antibodies are thought to last only a few months. Meanwhile, US biotech company Moderna said its vaccine led to a “robust” immune response. A trial involving 30,000 Ameri- cans is due to begin on July 27.
UK shares rose sharply on Monday with the FTSE100 closing up by 1.33% and European markets hitting their best levels in almost a month, although US indices fell as cases continued to rise, threaten- ing states’ reopening plans. Tuesday saw the FTSE100 close almost flat after California reimposed restrictions due to the virus. However, hopes about vaccines have led to falls among companies that have benefitted most from the lockdowns, such as Netflix and Amazon. Encouraging reports about vaccines led to another surge on Wednesday, with the FTSE100 gaining 1.8%. In the US, the S&P500 gained 0.9%. Top riser in the FTSE100 was BA owner IAG, which closed up by 10.72%, while 3i Group gained 5.15%.
London stocks closed down on Thursday after disappointing UK jobs data and falling retail sales in China, indicating how difficult a coro- navirus recovery could be. The FTSE 100 fell by 0.67% at 6,250.69. In the US, shares in Netflix fell by 11% after warning of slowing sub- scriber growth. In early trading Friday, shares were heading down.
Company focus: GVC Holdings
Betting company GVC Holdings, owner of Coral and Ladbrokes, re- ported a fall in net gaming revenue due to coronavirus lockdowns closing stores. It said revenue for the second quarter fell by 22%, but that it expected first-half core earnings to be ahead of expectations at £340m-£350m. Online revenue for the second quarter increased by 22%, but this was offset by lower retail revenue. UK retail gaming revenue fell by 86% on a like-for-like basis, while European store closures almost eradicated revenues on the continent. Overall, first- half net gaming revenue fell 11% while online revenues rose by 19%.
Analysts welcomed the results, and said the results showed the ben- efit of its robust diversified business model. In particular they pointed to the absence of sporting events, the company still reported decent revenues due to online gaming on non-sport activities such as poker and bingo. It is also reported a second round of investment is com- mitted to BetMGM, the company’s US joint venture with MGM Re- sorts, bringing total investment from GVC and MGM Resorts to $450m. BetMGM is likely to become the market leader in the ex- panding US sports betting and gaming market. Outgoing CEO Ken- neth Alexander said: “Given the extraordinary circumstances in which the Group is currently operating, delivering double-digit online net gaming revenue growth in all of our major territories is a very strong performance.” GVC shares closed down by 2.56% on the day.
Economic roundup
If there was a message from this week’s economic data it was that, absent a vaccine, a return to pre-Covid business levels is likely to take longer than was hoped. The closest thing we have to a crystal ball is China. It was first to be hit, first to lockdown and first to reopen its economy. So its recovery is revealing.
Data this week shows that while its economic rebound has been sharp, it is unevenly spread due to nervous consumers. China’s economy grew by 3.2% in the three months to the end of June, which was above expectations. It was driven by industrial production which increased 4.4% compared to a year earlier, helped by state stimulus. But retail sales fell by 3.9% in the second quarter compared to a year earlier, and by 1.8% in June – way below expectations of a 0.3% rise. Cautious Chinese consumers are likely the result of lingering concerns about infection risks in shops, bars and restaurants, i.e. much of the services sector, together with a reluctance to spend any savings because of job insecurity. A repeat of that pattern in the UK would be particularly damaging due to our reliance on services. Investors were cool on the data. The Shanghai Composite fell by 4.5% on the news. Separate data released on Thursday showed Chinese unemployment at 5.9% in June, down from 5.9% in May but still high in historical terms.
Conversely, UK retail sales data for June showed a sharp jump. Total sales rose by 3.4% in June, up from a 5.9% fall in May and a 1.6% drop a year earlier. The rebound shows the release of pent up demand in the first month that non-essential shops reopened, and such growth may be difficult to maintain as unemployment rises when the government’s job retention scheme is scaled back.
There was also disappointing GDP data. GDP growth was just 1.8% in May, as businesses started to emerge from the lockdown. It was a big bounce from the 20.4% contraction in April, but nevertheless was way below expectations of a 5.5% expansion and so dampens hopes of a sustained ‘V-shaped’ recovery.
UK unemployment figures were also released this week, and while the overall unemployment figure remained steady at 3.9% in the three months to May, it does not reflect what is actually happening beneath the surface. According to the Office for National Statistics (ONS), the number of people on UK payrolls fell by 649,000 between March and June, and from May to June, 74,000 people lost their jobs. ONS deputy national statistician for economic statistics, Jonathan Athow, said: “The Labour Force Survey is showing only a small fall in employment, but shows a large number of people who report working no hours and getting no pay…there are now far more out-of-work people who are not looking for a job than before the pandemic.” Self-employment fell by 178,000 between March and June to 4.85m – the worst quarter on record. Still, jobless claims fell by 28,100 in May after soaring by 853,000 in April and 566,400 in March. But the overall picture is being flattered by the furlough scheme which is delaying the inevitable for many thousands of workers. In a separate release from the ONS, inflation rose for the first time this year, from 0.5% to 0.6% in May, boosted by rising costs of computer games. Finally, US/China tensions continued with President Trump ending Hong Kong’s special trade status with the US and signing leg- islation to sanction Chinese officials.