Global share markets struggled to hold on to early gains this week, as relations between the US and China hit a new low and the US economy showed signs of deteriorating.
UK shares started the week on the back foot, with the FTSE100 closing down 0.5% due to worries about rising coronavirus cases and protracted EU negotiations about its economic recovery package. Shares in Europe closed up on hopes of a deal on the emergency stimulus package and US stocks also made gains, with the Nasdaq actually closing up in the year to date, having made up its losses from the March crash. Tuesday saw a small gain on the FTSE100, rising just 0.13% after the EU agreed its 750bn recovery package. Markets overseas displayed more enthusiasm, although European gains were muted due to a strengthening Euro. The European Stoxx 600 rose by 0.3% and the German Dax closed up by 0.96%.
UK and European shares finished down on Wednesday as tensions between the US and China intensified and reports suggested the UK was heading for a no-deal Brexit. The FTSE100 closed down 1% at 6,207.10. On Thursday, UK shares rose but there were big losses on Wall St, as Microsoft, Apple, Amazon, Google-owner Alphabet and Facebook all fell by over 3%, enough to drag the S&P500 down by 1.2% while the tech-heavy Nasdaq lost 2.3%. The FTSE100 rose fractionally by 0.07% at and the FTSE250 rose by 0.14% at 17,489.45. In early trading on Friday, UK shares were heading down.
Company focus: Unilever
Consumer goods company Unilever became the most valuable company in the FTSE100 on Thursday after its shares soared on better- than-expected first half results. The company, which owns brands from Ben & Jerry’s ice cream and Hellman’s mayonnaise to Dove soap, posted only a slight drop in sales of 0.1% compared to expectations for a 3.5% decline. Strong demand for hand sanitiser and home foods helped offset a downturn in out-of-home food channels. Shares rose more than 8%, despite second-quarter underlying sales falling 0.3 per cent — the first quarterly fall in 14 years — but analysts had predicted far worse. Alan Jope, chief executive, said: “We’ve shown good agility in responding to massive changes in demand and in what people are buying and consuming.” The company added Lifebuoy soap and hygiene products in 50 countries and in- creased production of hand sanitiser by 600 times. Sales of ice cream jumped 265 in the second quarter as consumers indulged at home during the lockdown.
Underlying operating profit for the first half rose 3.8% to €5.1bn. Mar- gins were helped by a large cut in marketing spend – the company is one of the world’s largest advertisers. Unilever has also initiated a strategic review of its tea business – which excludes the India and Indonesia businesses as well as the joint venture with Pepsi. The joint venture will be either demerged or sold by the end of 2021, delivering around €5bn for Unilever, according to Brewin Dolphin esti-
It has been a fraught week for politicians and policymakers. In Europe the EU eventually agreed a €750bn stimulus package to assist stricken economies with their recoveries after one of the longest meetings in EU history. But in the US, a planned $1trn stimulus package due to be announced on Thursday was delayed as politicians failed to agree on key details. The delay threatens to leave more than 25m unemployed Americans without their $600-a-week in extra unemployment benefits from next week.
US Congress is debating how or if to extend the emergency programme to prevent a sudden income shock which could see household spending plummet. The stall in negotiations comes as initial jobless claims in the US rose this week for the first time since early in the pandemic, suggesting that the reversal of some states’ reopenings due to the coronavirus has put the US recovery on hold.
Meanwhile, hope appears to be fading that the UK will strike a trade deal with the EU, forcing a no-deal Brexit at the end of the year. EU chief negotiator Michel Barnier said a deal looked “at this point unlikely” due to the UK position on fishing rights and competition rules, while the UK has ruled out extending negotiations past the end of the year. In addition, reports this week suggest that the UK government has abandoned hopes of reaching a trade deal with the US before the presidential election in November. The government had hoped to fast-track a deal by the summer but there are still many contentious issues to resolve, not least whether to permit US agricultural imports into the UK.
There was some good news on the UK and US property markets, however. Rightmove’s latest house price index showed average prices rising at an annualised rate of 3.7% in July, the highest since 2016. The online property portal also said buyer enquiries were up by 75% compared to 12 months ago, and that was likely to increase further as Scotland and Wales were behind England in opening up their property market. Miles Shipside of Rightmove said the government’s stamp duty holiday had helped boost activity. In the US, too, sales of second-hand homes exceeded forecasts last month. Data from the National Association of Realtors showed the annualised pace of existing home sales soared by 20.7% in June when compared to the month before, supported by record low mortgage rates. Property prices were rising too, with the median price of an existing home rising by 3.5% from a year ago, to $295,300. The news bodes well for the broader economy as rising house prices are known to help boost spending by making homeowners feel wealthier.
Back in the UK, manufacturers said they were more optimistic about the outlook even as production volumes fell sharply in the three months to July, according to the latest survey from the Confederation of British Industry (CBI). The total order book balance increased to -46 in July from -58 in June. The survey revealed total new orders falling at their fastest pace since October 1980, with domestic orders and export orders showing record declines for the third month running. However, manufacturers said they now expect output in the next quarter to begin to recover.
And data this morning from the Office for National Statistics showed that UK retail sales rose by 13.9% in June, the biggest jump on record, as non-essential stores were allowed to open. The ONS said sales volumes were around pre-pandemic levels.