Boris is Back

#Borisisback

In the UK, full lockdown measures are in place until at least 7^th May, but businesses and households are beginning to ask when can we start on the path towards returning to normal? The government has already outlined its five red lines to ease containment measures but PM Boris Johnson has urged caution on easing lockdown and suggests any ‘modification’ must not risk a second peak in Covid-19 cases.

After the recent 50% upward re-vison by the Chinese authorities of the death rate in Wuhan, the world has become even more sceptical about the reliability of the data, although from a stock market perspective many UK companies with Chinese factories or Chinese global supply chain partners are reporting production returning towards normal levels. Global iron ore miners have also reported a recent pickup in demand from China.

The challenge for all countries is that until a vaccine is commercially available our main defence against Covid-19 is social distancing alongside rigorous testing and tracing measures. The alternative to a vaccine solution is that ‘herd immunity’ is achieved but the World Health Organisation estimates under 3% of the world’s population have currently developed antibodies. Given ‘herd immunity’ is only achievable when around 60% of a population is immune, then lockdowns in various forms may be with us for a longer period. Without a vaccine there is also the risk of a second wave of Covid-19 cases and further lockdowns. The director of the US Centre for Disease Control and Prevention has warned of the possibility that the assault of the virus on the US next winter, will actually be even more difficult than the one the country has just gone through.

Covid-19 challenges remain in those countries that first experienced the outbreak. In China, Harbin, the second largest city in the north east has re-entered lockdown due to imported cases from across the Russia border. This will have ramifications for international travel in the future given the different phases of the Covid-19 outbreak that different countries are in. Meanwhile, Singapore has just seen its biggest daily jump in Covid-19 cases, the majority of which is linked to industrial work sites and tightly packed Asian worker dormitories. It has extended its lockdown until 1^st June.

Investors are focusing now upon Europe where some countries are beginning to ease lockdown measures. In Germany, small shops and garages are being allowed to open their doors as long as they apply social distancing measures. VW’s car plant in Wolfsberg is re-starting production at 15% capacity this week and hopes to be running at 40% by the end of next week. Meanwhile, in the US, New York, which ground to a halt, may re-open manufacturing plants and re-start construction activity after May 15^th according to its governor.

The UK government has said that the virus has peaked but has warned life could be disrupted in some way until the end of the year. However, every country and business sector will be different. For example, MP Michael Gove, speaking on the BBC Andrew Marr Show said that ‘the hospitality sector will be among the last to exit lockdown’.

We Brits spend a lot of time moaning about the weather and queuing! However, social distancing means we are getting more used to queuing. Unfortunately, many British businesses are now wondering where they come in the easing of the lockdown queue. For example, pub landlords, cannot have been encouraged by Michael Gove’s thoughts. By comparison, a number of housebuilders are looking to re-commence building activity in a phased way in May while B&Q intends to re-open over 60 stores with ‘social distancing controls.’

What about public transport? Passenger numbers on trains are just 3% of pre-crisis levels but if they returned to 20% capacity then social distancing would become a challenge. Should key workers in essential sectors be given travel priority or could working hours be staggered to avoid travel peak times? In London, tube journeys are down by 95% and Transport for London has furloughed 7,000 staff. The Mayor of London has warned transport ‘will not immediately return to normal’.

The government needs to discuss a return to normality or risk small businesses folding. Meanwhile, banks have approved less than half of the 36,000 requests for cash from the government’s coronavirus Business Interruption Loan Scheme.

At least Boris is back! Our PM was outside 10 Downing Street earlier and is resuming-full-time duties and will be chairing the government’s Covid-19 war cabinet. A growing number of senior Conservative MPs are calling for lockdown to ease, amid mounting concern about the economic damage.

However, will the PM’s own experience with Covid-19 sway policy?

What have we been watching?

Covid-19 continues to dictate the path of markets. Over the weekend, more countries around the world, with the notable exception of the UK, have made moves to start easing lockdown measures. However, a vaccine trial has started in the UK. While positive, this was countered by accidentally published draft documents published by the WHO which revealed Gilead Sciences Remdesivir drug had failed in its first randomised clinical trial in China.

The Covid-19 lockdown induced glut in oil saw oil prices fall sharply, exacerbated by technical storage/trading issues in the US oil futures market. However, President Trump found a quick and cheap way to rally oil prices -by threatening Iran!

While the death toll from Covid-19 sadly, continues to grow, the economic casualties also continues to build. India, which has imposed one of the most severe lockdowns is forecast to experience a 25% contraction in its economy during the second quarter. Meanwhile, global container shipments which are down by 15% so far this year, are expected to drop by 30% in the second quarter as high street retailers delay orders. The Civil Aviation Organisation said that the Covid-19 outbreak could mean 1.2billion fewer airline passengers worldwide by September.

In the UK, the deputy governor of the Bank of England (BoE) said that a 35% contraction in the economy in the second quarter predicted by the Office of Budget Responsibility did not look unrealistic. The BoE also highlighted the risk that behavioural changes could dampen the scale of any recovery even after the lockdown measures are relaxed. The IHS Markit PMI business activity indicator for April collapsed to a record low of 12.9 (reading of above 50 signals expansion). Meanwhile, the ONS revealed that the UK budget deficit for 2019/20 was £48.7bn. However, the director of the Institute of Fiscal Studies said that the UK’s budget deficit is set to see ‘an absolutely colossal increase to a level not seen in peacetime’. The Covid-19 support package could push the deficit as high as £260bn.

In Europe, the composite PMI business activity indicator slumped to a record low of 13.5 in April. EU leaders tasked the European Commission with drawing up a support plan to deal with the Covid-19 induced recession. The financial stimulus is expected to total at least €1trillion but all the details remain to be resolved. However, the support package is not expected to be ready until mid-May.

The US Senate and Congress approved a bipartisan, nearly half-trillion Covid-19 relief package with funding earmarked for devastated small businesses, overwhelmed hospitals and the ramp-up of testing centres nationwide. Latest figures show that 4.4million Americans filed for unemployment benefits last week, taking the total number since mid-March to over 26 million.

The expiry of West Texas Intermediate (WTI) oil futures for May which would force holders of one contract to take delivery of 10,000 barrels of oil, with nowhere to store it in the US, prompted a rush of sellers that, at one point, drove the contract deep into negative territory below minus $37! While ‘technical’ trading issues caused this, it does reflect the current glut of oil. Brent oil slumped to $17 at one point. Russia and Saudi Arabia’s oil output cut comes into force in May but there is talk that the Saudi’s want to bring this forward. Brent oil bounced higher as President Trump ordered the US Navy to ‘shoot down’ Iranian ships if they ‘harass’ American vessels.

Finally, Covid-19 conspiracy theories abound. In the UK, the attacks on 5G -phone masts are disturbing. The more alarming conspiracy story is that recently highlighted by a number of sources including President Donald Trump. This implies that weak safety protocols at Wuhan’s state-run Institute of Virology meant that an infected lab technician visited the local food market and this started the global pandemic. The State of Missouri has now brought a civil law suit against China, accusing it of deception and the mis-handling of the Covid-19 outbreak. The Covid-19 blame game is well underway and cannot be good for trade relations once the world emerges from lockdown.

Read Last Week’s Alpha Bites – The World Turned Upside Down

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