Lockdown Lottery

While the recent positive vaccine news is a game changer, until vaccines are rolled out across the population, social distancing/face masks/frequent hand washing remain our primary defence. Much ink has been spilt over lockdowns in the fight against Covid-19, while the primary weapon in enforcing social distancing to prevent the NHS being swamped and restricting excess deaths, it has come at a stiff economic cost.

The UK economy rebounded strongly in the third quarter, but the latest lockdown looks set to slam this into reverse in the fourth quarter. The UK is not alone in this challenge and with cases rising in the US, will incoming president Joe Biden introduce lockdown measures on Americans to cover the gap until vaccines gain coverage?

The current 4-week lockdown in England is far less strict as that in the Spring. Many more businesses are open this time and in doing a food shop at the weekend roads and carparks felt very busy – perhaps too busy.  However, small businesses must be feeling they are victims of a lockdown lottery. Non-essential retail shops have closed, but this has been clouded by those with mixed retail – food and non-essential items. For example, Clinton Cards has said it is ‘grossly unfair’ that supermarkets cans sell greetings cards in lockdown while specialist retailers must close.  This looks like another nail in the coffin for the local high street with those offering a ‘click & collect’ service having been thrown a lifeline, while online retail giants like Amazon continue to clean up.

Clearly, there remain major losers of the lockdown lottery with the hospitality sector being a prime example. While government support is to be welcomed, it will not be there for ever, and which sector you operate in and where your business is based could be all the difference between surviving and going bust.

We expect more positive vaccine developments in the weeks ahead and importantly clarification on hope they will be rolled out in a mass immunisation programme. Realistically, sadly these are unlikely to come in time to help many small business owners. Retailers are now pushing for a temporary extension of trading hours in the run up to Christmas to make up for lost lockdown sales. At least it looks as if the current lockdown is not going to be extended in England but will be replaced by a new 3-tier system and more mass testing.

What have we been watching?

Moderna’s Covid-19 vaccine trial news at the start of last week gave markets a welcome shot in the arm as the US marked a bleak new milestone in the pandemic with 250,000 deaths. China also announced that Sinovac’s vaccine had led to a quick immune response in phase I and II trials and already has a mass vaccination programme underway even though data from phase III trials has not been published yet. Pfizer released more data on its vaccine which showed that it appeared to protect 94% of adults over 65 years old and the vaccine has been submitted for regulatory approval. This morning, Astra Zeneca announced positive vaccine news albeit with a higher dose seemingly less effective with a blended efficacy of 70% across the doses but 90% with half a dose. The vaccine news is most welcome as more countries report record Covid-19 cases. The US hopes to begin Covid-19 vaccinations in early December as new Covid-19 cases continue to grow with more regional lockdowns being imposed as in California.

After the run of encouraging Covid-19 vaccine news, the next hurdle may be convincing enough of us to be vaccinated which is why health regulators will want to ensure data proves vaccines to be entirely safe. A survey (pre-Pfizer vaccine announcement) in the US reveals that concern over vaccines is fairly wide spread and only 21% of Americans would ‘definitely’ get a Covid-19 vaccine, rising to 51% if the ‘probables’ are added. For Republican voters, the totals are lower again at just 14% and 44%! This is not just a US problem with a similar poll in the UK suggesting only 53% of people surveyed suggesting they are certain/very likely to get a vaccine. Could this lead to the imposition of social distancing/travel restrictions on those that are not vaccinated? Meanwhile, the EU has warned Hungary that its plan to import and possibly use Russia’s Sputnik V vaccine could damage trust.

While Covid-19 grabs the headlines, geo-political tensions continue. The US, UK, Australia, Canada and New Zealand jointly accused China of violating its commitments by ousting pro-democracy lawmakers from Hong Kong’s legislature. Meanwhile, outgoing President Trump is looking even more dangerous and was reported to have been talked out of bombing Iran!

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The Brexit trade rumour mill went into overtime with talk of a deal early next week or is it December? We all know any deal will be one minute to mid-night! Having got this close surely both sides cannot afford to drop the ball given the Covid-19 hit? Boris Johnson will no doubt hail any deal as a victory but of course will be nothing of the sort. Key for investors is that the Brexit uncertainty is removed. Sterling edged up to above $1.33. In the meantime, Felixstowe container port is already reporting a logjam of 11,000 containers and we haven’t even got a Brexit deal yet!

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In the UK, the Bank of England’s Andy Haldane remains head cheerleader for the UK economy, suggesting that the outlook for 2021 is materially brighter than a few weeks ago. A sixth straight month of growth in UK retail sales in October was encouraging although consumers may have been enticed by some early Christmas shopping with the bulk carried out online. Chancellor Rishi Sunak will deliver his Spending Review this week and ahead of this October borrowing showed records still being set. The monthly government borrowing for the April-October period was £215bn, the highest on record albeit some 25% lower than the official forecast.

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In the US, President-Elect Joe Biden warned of dire consequences if President Trump and his administration continue to refuse to co-ordinate with his transition team on the Covid-19 outbreak and block briefings on national security and policy issues. Meanwhile, the US Federal Reserve (Fed) suggested it could expand debt purchases and is ‘committed to using all of its available tools- not just the federal funds rate and forward guidance, but also large-scale asset purchases’. There was a  ‘spat’ between Steve Mnuchin and the Fed over stimulus support and the release of unused funds from the Fed back to the government to support spending. There is still no sign of a deal from the US government and may now be unlikely before Joe Biden becomes President in January – assuming they can get the sitting tenant out!

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Last week a trade deal was done in the Asia-Pacific region which is being hailed as one of the largest regional deals ever covering fifteen countries and eliminating 90% of tariffs. The Regional Comprehensive Economic Partnership covers about 42% of global manufacturing and one-third of the world’s population. President Xi Jinping had a swipe at Donald Trump by heralding China as the pivot point for global free trade and saying that China will open up its economy to import more high-quality goods and services. Meanwhile, the State Administration for Market Regulation has published draft rules aimed at discouraging monopolistic behaviour among internet platforms which could have ramifications for China’s technology giants – Alibaba, Tencent, JD.com and Baidu.

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Brent oil edged up to $45 on the vaccine news. Saudi Arabia called upon OPEC+ producers to be flexible but the latest meeting failed to reverse plans to increase oil production in January. However, the next meeting is in early December and OPEC members are reported to be considering a possible three-month extension to the current production cuts.

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Finally, a racing pigeon from Belgium has set a new world record after being sold for more than €1.6m. Initially, put up for auction for just €200, the price was driven skywards by two Chinese bidders under the pseudonyms of Super Duper and Hitman – the former was the winning bidder. Sounds bird brained to me!

 

Read Last Week’s Alpha Bites – Cummings and Goings

 

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Alpha Portfolio Management is a trading name of R C Brown Investment Management PLC which is authorised and regulated by the Financial Conduct Authority.