Nov 02 2020

Over the weekend, Prime Minister Boris Johnson announced a month-long lockdown to begin on Thursday 5th November in a hastily organised press conference after information was prematurely leaked to the press. The new restrictions replace the tiered system that has been in force for less than three weeks.

From midnight on Wednesday 4th November, people in England will be asked to stay at home to ‘protect the NHS’ and will only be allowed to leave their homes for essential appointments. Schools will remain open, as will workplaces where people cannot work from home. An extension to the original furlough scheme was announced to run until December, with the Government again covering up to 80% of employees’ wages. The retail and hospitality industries warned immediately that this would simply not be enough, calling for grants to cover ongoing fixed costs. The news comes as a blow to both sectors, with retail store vacancy rates rising to 13.2% in the last quarter, and hospitality sales falling by almost half year-on-year.

The lockdown’s rationale centres around modelled data that shows the NHS being overrun by early December and daily fatalities rising rapidly, even taking into account all the extra capacity provided by Nightingale hospitals left largely unused in March and April, and the time since then that the Government has had to prepare for the second wave of the pandemic.

The data presented at the press conference showed various scenarios in which hospital admissions would rise to levels above those seen in the Spring, with daily fatalities soaring; in one case (the PHE/Cambridge model in blue, below) to more than 4,000 per day by December:

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The problem with these and other data presented throughout this crisis is that they are applied inconsistently, shown without transparency, without context, and without their underlying assumptions that would allow others to interrogate them. Nor do they consider the wider societal, economic and health impacts on the country.

Previous Government models showing dire outcomes have already proven to be invalid – while this set may be different, they must be shared for wider analyses and corroboration with actual data. Professor Carl Heneghan and his team at the Centre for Evidence-Based Medicine have quickly pointed out, for example, that the daily death models showcased are at least three weeks out of date and significantly out of alignment already with the current picture. He points to the University of Cambridge’s Biostatistics Unit having revised their own projections down substantially twice over that period. They also note that estimates made for more than a couple of weeks hence tend to give rise to highly inaccurate scenarios.

The World Health Organisation has forcefully stated that they do not advocate lockdowns as the primary means of control of Covid, arguing that they should only be used to buy time to reorganise, regroup and rebalance resources to avoid permanent impoverishment. Robust questions should be asked of the Government as to how they have used the time they have had since March.

Away from the UK, better-than-expected Q3 GDP data were released for the Eurozone, with growth coming in at 12.7% quarter-on-quarter, meaning almost three quarters of output lost has been recovered. The ‘big four’ economies – France, Germany, Italy and Spain – all registered record quarterly growth as they bounced back, though the outlook for Q4 is less positive given new restrictions recently announced in France and Germany:

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The European Central Bank (ECB) delivered a promise to provide additional monetary stimulus by December to fight the weakening economic outlook, with the unusual clarity of their message surprising market commentators. More quantitative easing is expected, along with a loosening of lending criteria to banks.

The US economy also bounced back with a record yet temporary surge of growth in Q3 as businesses reopened and stimulus cash powered consumer spending, reversing much of the collapse stemming from lockdowns. GDP grew by a record 7.4% quarter-on-quarter to end around 3.5% below the pre-pandemic peak. As in Europe, the outlook for Q4 is gloomier, with 11 million fewer workers on payrolls and a deadlock extending over a new stimulus package:

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The general sense of worsening sentiment within Western economies drove a week of negative equity market returns in Pound terms, with Europe, the UK and US feeling the brunt, falling by between 4.8% - 6.2%. Notably, popular tech and growth stock names in the US sold off heavily as their results didn’t meet investor expectations and forward guidance was less positive.

While Emerging Market, Asian and Japanese equity markets also fell, they did so by much less, again reflecting their ongoing superior handling of the virus. Asian equities were the top performers with a loss of -1.3%, with Japanese and broad Emerging Market equities further back (-1.6% and -2% respectively).

UK Gilts and index-linked Gilts enjoyed a strong week, countering equity market weakness and rising by 1.2% and 2.1% respectively. The gold price fell by 0.5% in Pound terms but provided protection for investors relative to equities, while the silver price fell by 3.3% despite a late-week rally.

This week is set to be dominated by high-level, macro events. The US Presidential election will take centre stage on Tuesday 3rd November, though the result may not be immediately apparent given the enormous number of postal ballots that have been cast and could cause delays. Later this week the US Federal Reserve conducts its monthly meeting, as does the Bank of England which may now look to provide additional monetary support as we head into lockdown. All this of course is overlayed with the progression of Covid and should make for an interesting week ahead.

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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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For further information, please contact:
Andrea Barker
andrea.barker@fairstone.co.uk
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