25 June 2020

Independence Day!

It seems that the citizens of the United States of America won’t be the only people celebrating the Fourth of July this year.

The embattled locked down residents of England will have some cause to pop some corks that day as restaurants, pubs and, perhaps of even more importance, hairdressers start to welcome their customers back. It will all feel rather different to the way in which we embraced these businesses before coronavirus came on the scene, but will, I am sure, be very welcome to all and sundry.

Further easing of the lock down restrictions may be very welcome, but the news that Intu, the largest operator of shopping centres around the country, is close to collapse underscores the problems facing the retail sector. Intu operates such centres as Lakeside in Essex and the Trafford centre in Manchester, along with 15 others here in the UK - not to mention three in Spain, and had been facing problems before the coronavirus crisis forced the closure of its centres. It all goes to emphasise the tough conditions faced by the retail sector.

Despite this sobering news, shares have remained fairly buoyant. While the pandemic continues to spread around the world, here at home – and in Europe in general – the worst seems to be behind us. Admittedly Germany is seeing a spike in cases, but from a very low base and as a consequence of a specific outbreak, but unsurprisingly governments remain cautious as hotspots of Covid-19 continue to emerge. Nevertheless, the emphasis has clearly shifted from the medical to the economic agenda, while the need to address mental health problems created by the lock down will also have prompted the easing.

In some measure it seems surprising that investors have remained as sanguine as they have, but with interest rates close to zero and government bonds offering paltry yields, the alternatives are few and far between. Moreover, confidence is growing that the recession created by the measures introduced to combat the pandemic could be short lived. That said, difficulties in working our way out of the lock down seem inevitable, while concerns of a second spike in the virus are likely to have a dampening effect on confidence

The risk remains that a second wave could emerge to upset the apple cart in the autumn and this spectre will doubtless be reflected in continuing market volatility. There is also the fact that many businesses will fail to survive the downturn in activity that this crisis has brought about. Unemployment looks certain to be significantly higher in the weeks and months ahead and government borrowing has soared. Our emergence from lock down promises to be challenging and is unlikely to be a smooth path.

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