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This week has seen a more positive tone in markets with the focus of attention being on the potential re-opening of economies currently in lockdown.
The US Government has already issued guidance to US States on a phased exit from lockdown but there is a concern that some States are moving too quickly in the absence of a vaccine or mass testing. As I mentioned in my video update last week, the delicacy of this cannot be understated. There is a delicate balance between restarting economies thus saving jobs and the risk of a second wave of infections, resulting in subsequent lockdowns and even greater economic damage.
Closer to home, France, Germany and Spain are all seeking to reduce restrictions with shops, markets and schools reopening in the next couple of weeks. However, many are recommending that those who can work from home continue to do so and travel restrictions remain in place. By the time you are reading this, we should also have heard more on the UK Governments plans although we expect them to err on the side of caution.
If handled well, this could mean that we are finally seeing some light at the end of the tunnel. We are very much in the hands of scientists and politicians and time will tell whether the gradual easing has been successful or not.
Whilst undoubtedly positive news, the speed of the resulting economic recovery remains in doubt. The consensus view has moved from a rapid recovery to a shallower and more prolonged one. Again, this all hinges on the success of the easing of lockdown although we can look to China for some clues. The accuracy of Chinese economic data is often viewed with some scepticism, but other data points can give us some insight into how broadly the economy is picking up. One of these is traffic congestion data which has largely returned to re-crisis levels during the working week. However, congestion levels at the weekends are still significantly lower. Another data point is cinema box offices sales which, again, are still far below their pre-crisis levels. This suggests that people are working but not willing to risk infection by going out and socialising at the weekend. This does not bode well for developed, service based, economies.
Elsewhere, after the drama which unfolded last week, Oil remains volatile and Brent Crude trades at 23 dollar per barrel, not far off a 20-year low. This is a headwind for the energy heavy UK stock market but also creates opportunity in Oil companies which are now optically cheap relative to both the wider market and their own history.
Finally, this week has also seen increased speculation over the health of the North Korean leader, Kim Jong Un. Kim Jong Un’s sickness or death is a matter of speculation and it is best to remain sceptical for now. If Kim dies or is incapacitated, it is a serious concern for North Korean and hence regional stability – and not only in the medium and long term. There are also negative implications for US-China relations which are strained following the recent trade war and the pandemic. Whilst North Korea is economically insignificant, geopolitically, it is not, therefore, we will be monitoring news flow on this over the coming weeks and months.
Until next week, stay well.
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