Global equity markets were mixed this week. They rose slightly in the US, where the S&P500 hit a new record high, rising by 54% from the lows of March 23 to exceed the record it set back in February. The Nasdaq also hit a new high this week while Apple became the US’s first $2trn company.
Equities in Europe and the UK drifted lower over the week on news of rising coronavirus cases in Europe, and a downbeat out- look on the US economy from the Federal Reserve.
On Monday, the FTSE100 gained 0.6% as a highly anticipated meeting between the US and China was cancelled at the week- end. UK equities lost ground on Tuesday, with the FTSE100 closing down by 0.83% as US/China tensions flared again with the US moving to further restrict Huawei’s access to US-made chips. In the US the S&P500 closed at a record high, having rallied 54% from its lows on March 23. Wednesday saw gains in the UK, with the FTSE100 ending the session up 0.6%, but US markets lost ground on a bleak outlook from the Federal Reserve. In the UK on Thursday, the downbeat outlook in the US, and higher initial jobless claims, weighed on sentiment, with the FTSE100 losing 1.6% by the close. US markets closed up thanks to big gains by the major tech firms, with the Nasdaq rising by more than 1%. In early trading on Friday, UK shares were heading up.
Company focus: Persimmon
Housebuilder Persimmon took a hit to revenues and profits in the first half of the year due to Covid-19, but it still struck a confident tone about the outlook in its half-year results this week.
Net revenues in the six months to June 30 fell from £1.75bn a year ago to £1.19bn, while pre-tax profits fell from £509.3m to £292.4m. However, by the end of June, build rates had returned to pre-pandemic levels and CEO Dave Jenkinson said the second half had begun in “excellent fashion”. Average weekly sales per site since the start of July were up by 49% compared to a year ago. As a result, the company announced it would pay a “modest” interim dividend of 40p per share, and would review a further payment later in the year. A proposed 125p per share payment due on 2 April was cancelled, and a final dividend of 110p per share due in July was postponed to preserve cash.
However, sales volumes have rebounded, helped by the stamp- duty holiday announced by Chancellor Rishi Sunak. Forward orders were 20% up on a year ago at £2.5bn. However, the company warned that Covid-19, rising unemployment, and Brexit were risks to housing demand, but “long-term market fundamentals continue to be strong”. Shares closed up by 6%, making them the biggest riser in the FTSE100 on the day.
The US Federal Reserve’s staff told officials at the central bank that they were lowering their forecast for economic growth and for improvements in the labour market over the second half of the year, according to the minutes of July’s meeting released this week. The news led to broad falls in equity markets as investors worried about the deteriorating outlook. The minutes note that Fed officials said that the rate of recovery in gross domestic product and the pace of declines in the unemployment rate to be “somewhat less robust than in the previous forecast.”
The downgraded forecast was blamed on the increasing spread of the coronavirus and the slowing of business re-openings across numerous states. “Participants generally agreed that prospects for further substantial improvement in the labour market would depend on a broad and sustained reopening of businesses. In turn, such a reopening would depend in large part on the efficiency of health measures to limit the spread of the virus,” the minutes said. Several Fed officials said additional monetary stimulus would be needed and “some” said more fiscal stimulus would be necessary.
In the UK, too, forecasts for the economy in the second half of the year have deteriorated. Predictions compiled by the Treasury from 18 banks and think tanks reveal that the average forecast for UK GDP by the year end is an annual drop of -10.1%. Unemployment is forecast to rise to 8.3%. The average forecast is worse than the Bank of England’s own prediction that GDP will shrink by 9.5%. The Treasury’s survey says that the economy is expected to rebound by only 6.5% in 2021, with unemployment falling back to 6.6% by the end of next year.
Meanwhile, the rate of inflation in the UK rose in July as Covid-19 lockdown measures eased, with clothing and fuel the main drivers. Data from the Office for National Statistics showed the consumer price index rise from 0.6% in June to 1% in July, still only half the minimum target rate of 2%, although it was the highest level since March. Core inflation – which strips out volatile items such as energy, food, alcohol and tobacco – rose to 1.8% in July from 1.4% in June. Economists had expected the rate to fall to 1.3%.
A bright spot in the US was a surge in housing starts in July as the housebuilding sector continues its recovery. Figures from the Census Bureau showed housing starts rose by 22.6% in July compared to June, to 1.49m, boosted by record-low mortgage rates. The figure was above expectations for 1.24m. Housing starts are an important leading indicator for economic growth.
However, initial jobless claims released on Thursday spiked back way above 1m for the first time in three weeks. Total new jobless claims were 1.1m, but continuing claims decreased to 14.8m, the lowest figure since April. The Department of Labor said there were 28.1m people claiming benefits in state and federal programmes as of August 1.
On a separate, encouraging note, China and the US said they would be rescheduling the talks they cancelled last weekend to discuss progress on their trade deal.