All at Sea

Coronavirus outbreaks aboard cruise ships made distressing headlines at the start of the global pandemic. Many holiday makers were confined to their cabins and the ‘toxic’ cruise ships were detained in ports or frozen out at sea. So, spare a thought for some 400,000 mariners who are currently estimated to be stranded at sea or a foreign port due to lockdown measures.

‘It’s a ticking time bomb’ according to Guy Platten, Secretary-General of the International Chamber of Shipping. The crews of many ships have worked months past their contracts, some have been on their ship for more than a year and are now exceeding regulatory safety limits. A German-owned tanker was unable to sail last week until a substitute crew had been recruited due to worries about fatigue and security.

On 16^th June, emergency extensions to the labour agreements governing seafarer’s contracts expire. The International Maritime Organisation is calling on governments to create ‘safe corridors’ that would enable ship crews to join vessels. This comes at a time when the UK government has effectively cut off the UK from the rest of the world with the introduction of a 14-day quarantine for all new entrants.

Why does this matter? Well, maritime transport is the engine room of global trade with around 80% of goods by volume, carried by vessels that vary from container ships to oil tankers and dry bulk carriers, supported by more than 2 million merchant seafarers.

With countries easing lockdown measures many industries are seeing pent-up demand return, but as goods and inventories are sold then the stock pipeline needs to be re-filled. Some companies that rely on or are part of global supply chains have already started to report an increase in freight costs.

Unless the maritime industry ship crew issue is addressed then global economic recovery, while not in danger of sinking, does risk being blown off course.

What have we been watching?

Markets have continued to be supported by central banks and news of a further easing of Covid-19 lockdown measures. Covid-19 also appeared to be on the retreat in more countries. In the US, by the middle of last week, the S&P index had made up all the lost ground since the start of the outbreak of the virus in the country. US investors appeared increasingly confident at the start of last week that the US economy was on course for a V-shaped recovery. This was supported by the partial unlocking of New York City, the former epi-centre of the virus in the US.

However, this optimism was checked mid-week as the seven-day rolling average of new cases in the US was shown to have increased in 20 states with spikes in Texas, Florida and California. Markets received a further shock over the weekend as news emerged of a fresh outbreak in China. The country reported 57 new cases on Sunday of which 36 were linked to a wholesale food market in Beijing.

Until a vaccine is available the risk of a second wave remains and the outbreak in China is a reminder of the challenge the world still faces in tackling Covid-19.

Meanwhile, the row between the US and China over the Covid-19 outbreak flared up again with a US senator accusing Beijing of trying to block the development of a vaccine in the West. China has also been upset by a report from Harvard that suggests the virus hit Wuhan earlier than officially recognised. This is based on satellite images of a surge in traffic outside Wuhan hospitals in August 2019, coinciding with a rise in online searches for symptoms like ‘cough’ and ‘diarrhoea’. China said the study was ‘ridiculous’.

The OECD forecast the global economy to contract by 6% in 2020 due to Covid-19 but warned that this could as much as 7.6% were there to be a second wave of infection. The bounce back in 2021 is forecast to be 5.2% but would still make the recession the worst in the last 100 years outside of wartime. The OECD suggests the UK economy could be one of the worst victims of Covid-19 with an 11.5% forecast contraction in 2020, as the country is so reliant upon the services sector. Fortunately, the UK stock market is not the UK economy with about 75% of the top 100 companies’ earnings from overseas and 50% for 250 companies in the mid-cap index.

Brexit rhetoric continues to rumble on with chief EU negotiator Michel Barnier saying that the UK wants to be a direct competitor with the EU and that a level playing field on competition and the UK giving particularly on fishing rights. Meanwhile, the outgoing boss of the CBI warned that UK businesses do not have the resilience to cope with no-deal Brexit after the Covid-19 lockdown likening ‘no-deal’ to ‘setting the shed on fire while the house was in flames.’ UK Cabinet Office minister Michael Gove said the UK ‘will under no circumstances’ accept an extension to Brexit but added thar the EU’s chief negotiator is ‘inclined to move’ on key areas.

In the UK, Barclaycard’s UK consumer spending data for May showed a 27% fall in spend however supermarket spending remained resilient, while there was a recovery in home improvement and garden centres as these started to re-open. Some 8.9million workers are now covered by the government’s furlough scheme at a cost of £19.6bn. A further 2.6million self-employed workers are receiving support at a cost so far of £7.5bn. The initial estimate for UK economic growth in April confirmed an unprecedented decline in activity of -20.4% due to lockdown. This was however, broadly in line with a wide forecast range and there were some far gloomier forecasts.

The US Federal Reserve (Fed) said that interest rates are likely to stay at virtual zero out through 2022. QE at $80bn a month of US Treasuries will continue indefinitely. The Fed expects unemployment of about 10% at the end of 2020 with the economy to contract by 6.5% in 2020 before bouncing 5% in 2021, which is above the OECD forecast.

Japan approved an emergency budget worth more than £230bn to deal with the impact of Covid-19.

China’s factory-gate prices remained at a four-year low in May due to Covid-19, with the producer price index down by 3.7%. However, factory output increased slightly ahead of expectation in May. Retail sales remained in negative territory in May but improved significantly on those in April.

Brent oil dropped back to $37 on the OECD global economic forecasts and the latest virus outbreak in China.

Finally, even Marmite (you either love it or hate it) is not immune from the Covid-19 outbreak. Unilever, which owns the brand has said it has had to temporarily stop producing all pack sizes other than its 250g jar due to strong demand but a shortage of brewer’s yeast, a key ingredient. With UK pubs shut, breweries have also had to close creating a shortage of brewer’s yeast!

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