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The vaccination roll-out has enabled the government to lay out an exit path from lockdown. As Boris reiterated yesterday, the path is in place and all of us are looking forward to things returning to normal. However, there is a big question for many UK companies – just what will be the new normal when it comes to consumer demand?
Clearly, there have been real winners from the Covid-19 lockdown with, for example, an acceleration in the structural shift to online shopping. In addition, a period of enforced saving with holidays overseas curtailed, has led many households to undertake significant home and garden refurbishment projects. Local builders, DIY stores and builder merchants have all benefited from this activity.
Businesses that have been forced to close – non-essential retail, pubs and restaurants, cinemas and, bowling alleys will no doubt see a surge in activity as customers return to previous habits. For the online and structural winners however, how much of the lockdown boost will they hold on to? Overseas holidays are still a hot topic and it may be that many Britons take more stay-cations in 2021 and beyond. If we spend more time on holiday does that mean less time gardening, undertaking DIY or building projects? People have been reading far more during lockdown and doing hobbies – but will they do this less as things return to normal, or will an old interest have been permanently re-kindled?
Something that caught our eye is that consumers have been splashing out for Easter, with sales of Easter eggs up by 50%! Perhaps a sign of grandparents seeing their grandchildren with additional treats after twelve months of restrictions? Will this level of demand be repeated in Easter 2022? Is a sweet tooth the new normal?
Accumulated UK household saving during lockdown is thought to be over £150bn! The Bank of England is optimistic that the release of this saving and pent-up demand could boost UK economic activity significantly in the second half of 2021. After a very challenging twelve months, many UK businesses will be hoping so!
What have we been watching?
A positive first quarter for UK equities and a record high for the US S&P Index helped by President Joe Biden’s announcement of a $2.25trillion infrastructure stimulus plan and encouraging US jobs data. The 10-year US Treasury yield edged up to a 14-month high of 1.78% before edging back to 1.7%. US Treasury Secretary Janet Yellen said she did not think the recently approved $1.9trillion stimulus package would stoke inflation.
Covid-19 cases in Europe and Brazil remain a cause for concern not helped by further restrictions on the use of the Astra Zeneca vaccine in Germany, while geo-political tensions are still with us with the publication of the WHO report into the Covid-19 outbreak in China. The US and other countries have criticised China for failing to provide the WHO with sufficient data. The WHO says that ‘all hypothesis remain on the table’ regarding the source of the outbreak.
Markets were also briefly rattled by the collapse of Bill Hwang’s $10bn hedge fund with significant knock-on effects for the companies where he was a shareholder and for the banks that had provided him finance. The collapse is reported to have cost Credit Suisse $3bn and Nomura $2bn. Ouch!
Trade tariffs also re-surfaced last week – Not more trade wars I hear you cry. President Joe Biden is reviewing and threatening 25% tariffs on UK exports of some clothing, footwear and jewellery exports in retaliation should the government push ahead with a 2% digital services tax. This is quite a U-turn given the removal of Boeing tariffs just weeks ago. Chancellor Rishi Sunak is keen to introduce a tax on online retailing to help level up the playing field with bricks and mortar retailers but more so as the tax take of up to an estimated £30bn would fill a hole in the UK government’s finances created by Covid-19 support.
The IMF, ahead of its annual spring meeting, suggested it expected to raise its 2021 global economic growth outlook to 5.5% given the outlook for China and the US. China’s economic activity continues to improve and the US has the benefit of President Joe Biden’s $1.9trillion stimulus package. Global PMI manufacturing indicators for March also paint a very rosy picture for activity over the next six months.
The UK vaccination programme has started to slow as expected but also due to the early Easter break. However, 31.6million people have now received a first vaccine while 5.4million have had two jabs. Last week more people had a second jab than a first jab. The Government lockdown exit plan remains on track with non-essential retail to re-open on 12th April.
Meanwhile the vaccine spat with the EU continues as France imposed new lockdown measures. A senior EU policymaker said zero jabs would be shipped across the Channel to the UK if Astra Zeneca failed to meet its commitment to the EU. However, Pfizer criticised the EU for unnecessary administrative burden in rolling out vaccines and urged the EU to back down on threats to block vaccine exports as an essential ingredient for its vaccine is made in Yorkshire.
In the US, President Joe Biden announced a $2.25trillion infrastructure plan with the cost likely to be spread over eight years. Some $620bn is earmarked for transportation such as bridge repairs and electric vehicles, $650bn for high- speed broadband and improving water quality, $850bn for manufacturing and R&D with $400bn for care of the elderly and those with disabilities. Corporation tax will rise to from 21% to 28% and while the new jobs created will also increase the tax take, personal tax hikes may come later. The aim is to get the bill through Congress in July and the Senate by August. The US services sector grew at its fastest pace in almost seven years in March.
Japanese retail sales contracted for the third straight month in February although comments from the head of the Bank of Japan imply cautious optimism about the economic outlook.
Factory activity in China picked up in March after the Lunar New Year holiday and was ahead of expectation. China’s services sector also recorded stronger growth in March with business optimism rising to its highest level in over 10-years. However, there are reports that Chinese authorities are considering curtailing loan growth for the rest of this year to try and avert ‘asset bubble’ risks.
A large increase in Iranian oil production pushed overall OPEC oil output higher in March compared to February. Members that are exempt from OPEC+ capacity cuts continue to spoil the cartel’s efforts to re-balance the market. The subsequent OPEC+ meeting saw members agree to ease their output restrictions from May. Brent oil held steady at $63.
Finally, Deliveroo, having lowered the price of its share offering suffered another blow as its shares plummeted by 30% on its stock market debut. What is the ‘takeaway’ from this? Besides how you value a loss-making business, don’t forget corporate governance – founder Will Shu’s voting power and concerns about its gig economy worker model.
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