Oct 26 2020

Various new lockdown measures were introduced across the home nations last week. With Northern Ireland already shut for a four-week period to 13th November, Wales introduced its ‘firebreak’ lockdown, and Scotland announced a five-tier system of Covid restrictions to be introduced from 2nd November.

As mentioned last week, Wales’ firebreak is a strict lockdown that will see people banned from meeting other households indoors and out, all but essential businesses shut and senior years at secondary school not returning to the classroom after half-term. Of all these restrictions, the Welsh measures see the most dramatic divergence between the UK nations to date, and should give us some sense of how effective or not the ‘circuit-break’ proposed by SAGE (Scientific Advisory Group for Emergencies) would have been.

The new rules have already proved controversial, particularly around the definition of ‘essential goods’, with supermarkets having to decide which products are and are not allowed to be sold having been given no clear guidance. They will undoubtedly cause significant social and economic harm, and questions remain over their overall efficacy – no clear aim or targeted outcome has been given, nor can assurances be secured that 17 days will be sufficient to ‘regain control’ of the virus’ spread; indeed it has already been implied by a government minister that people should be prepared to move in and out of lockdowns until a vaccine is available.

In response, the Chancellor has upgraded the recently announced Jobs Support Scheme (JSS) to a more generous package, going some way to addressing its shortcomings. Now, people returning to work from furlough on a part-time basis will have to work 20% of their normal hours to be eligible for support, compared to 33% originally. The Government will top up 54% of pay lost (up from 22% previously), while the employer contribution has effectively been cut to 4% from 22% per the chart below from Oxford Economics:

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Along with the new support for wages, support for the self-employed has also been announced, with a doubling of grants from 20% to 40% of profits and increasing the maximum grant to nearly £4,000. As well, local authorities in Tier 2 areas in England are set to receive cash grants to help businesses stay afloat worth up to £2,100 per month for every business, as long as restrictions apply. 

This of course doesn’t solve the issue of businesses unable to offer workers even 20% of normal hours, but the risk of mass job losses in affected sectors has been reduced. Given it seems we will be living with increased restrictions for months not weeks, we would not be surprised to see further measures announced by the Chancellor in the near future. 

Economic data in the form of ‘flash’ PMI surveys indicated a deterioration in economic activity through October, implying a weaker end to the third quarter and a slow start to the fourth quarter. Europe is mirroring the UK’s increasing constraints on activity and saw service sector sentiment fall commensurately, though manufacturing continued to prove resilient as the chart below shows: 

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Eurozone consumer confidence also fell during the month, and with the labour market still very weak relative to pre-crisis levels and continued uncertainty regarding the path of the virus, the road ahead for consumers may be bumpy. The UK also saw a fall in these indices but both services and manufacturing remain in ‘expansionary’ territory, albeit less positively relative to previous months. 

In markets, we saw a generally stronger Pound during the week as new flow around Brexit negotiations improved, with rises of 0.2% - 0.8% seen against major currencies, including the US Dollar. This saw the outperformance of particularly domestically focused UK equities in the shape of the FTSE 250 index, which rose by 1.6%, ahead of most major indices. The FTSE 100 index fell by just less than 1%, hindered by the stronger Pound. 

The US S&P 500 was the worst of the major regions in Pound terms with a 1.4% fall. Stocks here are still oscillating around fiscal stimulus package news flow in the lead up to the election, even as virus infection numbers continue to rise in various states. The final presidential debate appeared to do little to alter the trajectory of a race that Democrat candidate Joe Biden still leads, at least according to polls: 


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In fixed income, notable downwards moves were made in UK government bond markets due to more positive sentiment as outlined above; Gilts fell by more than 2%, with index-linked Gilts dropping by 2.2%. 

Looking forward, stock markets are trending lower going into the new week amidst virus uncertainty. With just one week to go until the US Presidential election we unsurprisingly expect volatility in the lead up to and following what could be a controversial polling day, though as we have mentioned before, we would expect fiscal policy from either candidate to provide a further boost to risk assets both domestically and internationally. 

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The value of investments may fluctuate in price or value and you may get back less than the amount originally invested. Past performance is not a guide to the future. The views expressed in this publication represent those of the author and do not constitute financial advice.

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Andrea Barker
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