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What’s your money personality?

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What’s your money personality?

Monday, July 13th, 2020

We all have a different relationship with money. Recognising your money personality can help you better understand yours. Although no member of each group has exactly the same attitude towards their finances, researchers have identified four common attitudes towards money: Money Worship, Money Avoidance, Money Vigilance and Money Status. 

Psychologists think that our internal beliefs around money were formed by our childhood experiences, the community we grew up in and the spending habits of our family. Here is a description of the four money personalities:

Money Worship

If you’re a money worshipper, you might think that money could solve all your problems and that you can never reach a point when you’ll have enough. People who fit into this category are most likely to overspend on themselves or others and rack up credit card debts.  According to research by Creighton University, this is the most common money personality among Americans.

People who fit into this personality type might have to put some measures in place to control their spending habits. They could make a monthly budget and remind themselves to regularly check their bank balance to keep a tab on their spending.

Money Avoidance 

Money avoiders believe that they don’t deserve the money they have and try to avoid thinking about their finances. If you’re a money avoider, you might try to shift your money onto others, rather than take responsibility for making financial decisions. 

Money avoiders can benefit from setting up automatic contributions to savings accounts or speaking to a financial adviser to remove some of the responsibility around their finances.

Money Vigilance

If you’re extremely frugal and firmly believe saving for the future is the best use of money, chances are you’re money vigilant. People who fit in this category tend to derive more satisfaction from reading the interest rate on their bank statement than from buying something new. What’s more, they’re likely to prefer a conservative investment strategy and avoid financial risk.

If you fit into this personality type, you should be careful not to allow secrecy to stand in the way of better money habits. 

Money Status

People who fit into this personality type equate money with status. As a result, they may be driven to earn more money than their peers purely for the sake of earning more money. Although people who hold their net-worth in such high regard are likely to be high earners, they can be liable to make risky decisions and buy expensive things that reflect their wealth. 

If you tend to focus on “money status”, it’s a good idea to stop and think before making an expensive purchase as you could be at risk of buying things on impulse.

What is the value of advice?

Monday, July 13th, 2020

You’re not going to be surprised that, as advisers, our firm belief is that an advised client will get a better financial outcome than a non-advised client. How to prove, though, that we’re not just biased? What is the actual value of that advice? How can it be quantified?   

Most importantly, the value of advice is not simply tied to fund picking or performance.

A good example of this was when the FTSE 100 fell by over 26% in early March due to panic over the coronavirus outbreak and some advisers chose to move their clients’ investments out of equities into assets, traditionally viewed as ‘safe havens’. Although they may have moved them back into more equity-dominated funds in April, the FTSE 100 actually made its biggest recovery between 23 and 26 March so their clients’ money would have been out of the market at the optimum time. This is a clear sign that adding value by trying to ‘time the market’ does not work.

Advice, in our view, goes much further. It can cover: 

  • Behavioural coaching
  • Spending strategies
  • Portfolio rebalancing 
  • Tax-smart recommendations
  • Financial planning  

It’s all part of building a long-term relationship where the adviser really gets to know the client and understands their objectives for life.    

Behavioural coaching, in particular, can be useful in helping an investor to ignore market noise and to keep their emotions at bay so that they avoid expensive mistakes and stick to their long term goals. 

Research over a number of years by the International Longevity Centre (ILC) showed that using a financial adviser led to better financial outcomes in the following ways:

  • Taking advice added £2.5bn to people’s savings and investments,
  • The pensions of clients who received ongoing advice were worth 50% more than those who took one off advice. 
  • Those who took advice were likely to be richer in retirement.
  • The benefits of advice outweighed any costs associated with it 

In addition, the University of Montreal estimated that clients with an adviser would have a 2.73 times larger savings pot over a 15-year period than clients who hadn’t seen an adviser. If that time frame was reduced to five years, the savings pot would still be 1.58 times greater. 

Different investment companies quote different figures but on balance agree that advisers can generate between 3% and 4.4% per annum net returns for their clients.      

Set against this backdrop, it would seem financial advice does have a real value to offer.   

July markets in brief

Thursday, July 9th, 2020

As much of the West continues to tentatively emerge from months of lockdown measures, June has been an altogether more positive month when it comes to economic news. All the markets we report on rose during the month.

The global Black Lives Matter movement and the new Hong Kong security law usurped Covid-19’s position as the headline item on global media outlets for much of June, a sign that perhaps we are beginning to emerge into a ‘new normal’.

However, recent resurgences of Covid-19 in California, Texas and Florida demonstrate just how tentative this emergence must be.  Meanwhile, the virus continues to ravage much of the developing world, with a recent surge of cases in South Africa and other African countries.

UK

Unsurprisingly, most of the bad news came from the retail sector. Figures published in early June saw sales fall by 5.9%, in spite of the fact that many shops had moved online. Estimates suggest that around £2.15bn of commercial rent was unpaid for the quarter ending in June. Shirtmaker TM Lewin was the high street’s latest casualty, as it moved all sales online at the cost of 700 jobs.

However, there was positive news aplenty. Speaking on 30th June, Bank of England economist Andy Haldane announced that the UK economy was still on course for a quick, V-shaped recovery coming “sooner and faster” than expected. 

On the back of this, at the end of June, Boris Johnson announced his ‘New Deal’ worth £5bn, evoking President Roosevelt’s New Deal of the 1930s, a massive infrastructure spending designed to drag the US out of the Great Depression. Roosevelt’s deal was worth around 40% of the US GDP in 1929. By comparison, £5bn amounts to a more modest 0.2% of current UK GDP – not quite on the same scale.  

The FTSE100 rose by a modest 2% during the months closing at 6,170. And the pound was unchanged against the dollar, ending June at $1.2388.

Europe

All was relatively quiet on the continent from a news point of view. The European Central Bank (ECB) raised no alarm bells when it cut its growth forecast for the year. It now expects the Eurozone economy to contract by 8.7% this year. 

The ECB was again active in boosting the Eurozone economies, ramping up its quantitative easing programme by €600bn to a whopping €1.35tn, extending the programme to June 2021, six months later than originally planned.

Unsurprisingly given the economic turmoil, there were significant job losses. Airbus announced that it planned to cut 15,000 jobs across Europe, only to be expected in a year that has been the worst on record for the aviation industry.

Both major European stock markets we report on had strong months. The German DAX index rose by 6% to 12,311 while the French stock market was up 5% to 4,936. 

US

The US’s unemployment crisis continued in June. Despite the good news that the US economy had added jobs in May as measures were released in many states, a further 1.5 million people had filed for unemployment benefit. There are now 44.1 million Americans claiming unemployment support.

Like every other major economy, the US is now officially in recession. This means the end of a decade-long period of economic expansion. The Fed duly reminded US banks to ‘stay prudent’ as it warned that they could suffer losses of up to $700bn if the pandemic led to a sustained economic crisis.

As in the UK, the American retail sector suffered. Gap posted a $923m loss for the three months to May, compared to a $227m profit for the same period last. 

Despite a spike in virus cases towards the end of the month, the Dow Jones ended the month up 2% at 25,813. From this month forward, we will also report on the more broadly based S&P index, which closed June at 3,100.

Far East

June ended with China passing the controversial Hong Kong security law. The law gives Beijing wide ranging powers over Hong Kong. The law states that anyone who conspires with foreigners to provoke “hatred” of the Chinese government could have committed a criminal offence. Many are worried that this law could make criticism of the Chinese government ilegal. 

The security law wasn’t the only point of controversy from China during the month. There was escalating tension between India and China and there were clashes in a Himalayan border region, with reports suggesting that up to 20 Indian troops had been killed. A rise in tensions between the world’s two most populous countries is a real cause for concern.

And if this wasn’t enough disruption, Australian Prime Minister Scott Morrison said that the country had been the victim of a “sophisticated state-based cyber hack” and many commentators quickly pointed the finger at China.

On a more positive note, the UK opened trade talks with Japan. The region’s markets seemed to respond as if improving bilateral relations were the trend across the region, when in reality the opposite was true.

China’s Shanghai Composite index rose 5% to 2,985 and the Hong Kong market did even better, climbing 6% to 24,427. The South Korean market was up 4% to 2,108 and Japan’s Nikkei Dow index gained 2% at 22,288. 

Emerging Markets

As we write this, on 2nd July, Vladimir Putin has just won a controversial vote to amend the constitution. Importantly, the vote means that Putin’s term limits have been reset, potentially allowing him to rule as president until 2036.  

The Indian economy seems to be rebounding rapidly in the wake of its lockdown which was released on 1st June. Figures suggest that goods movement is close to pre-lockdown levels.

On the other side of the Pacific, Brazil became the second country to reach 1 million cases of Covid-19, and experts have said that Brazil could ultimately become the country worst hit by the pandemic.

Both the Indian and Brazilian markets enjoyed excellent months. The Indian stock market rose 8% to end June at 34,916, while Brazil went one better, gaining 9% to 95,056. In contrast, Russia, the other major emerging market on which we report, had a subdued month and rose just eight points to 2,743. 

Whether you’ll be enjoying that first refreshing pint in a pub or having a much needed haircut, we hope that you have a great July. Please get in touch if you have any further questions around this commentary.

5 key points for becoming financially independent

Wednesday, June 24th, 2020

Financial independence can seem like the holy grail. We may be striving towards it but feel bombarded by lots of conflicting messages on how best to attain it. These five points give an interesting perspective:    

Income is not the same thing as wealth

Having a high salary can help you accumulate wealth but that’s no good if you’re still spending more than you earn. That’s why you might hear of a professional footballer earning £30,000 a week going bankrupt while a bus driver, who’s saved diligently all his life, can retire a multi-millionaire. To avoid the spending trap, remember your real wealth or net worth is the amount on your balance sheet – your assets minus your liabilities.

Regardless of what your income level might be, try and achieve financial independence by thinking long term. What goals can you put in place regarding your career plans, your investments or any property you may have?        

Create surplus funds

To take advantage of any investment opportunities, you need to have sufficient money to invest, and to be successful in investing, you need to reach a critical mass. At this point, the returns generated on your savings will have more impact. For example, a 10% return on £10,000 would give you £1,000 before tax, while the same return on a portfolio of  £1,000,000 would give you £100,000 for the same amount of effort and research.

Amassing wealth is a gradual process but through small steps to cut expenses or generate income, it can amount to something over time. When the interest your money has earned starts to earn interest too, that’s when you’ll really start to notice the difference. This is where the power of compounding comes in. It also means you can invest more the next time an opportunity comes round and so on.     

Taxes have an impact

Think carefully about where you hold your assets. Remember not all income is treated the same. You may have a great deal of wealth but be generating a lot of taxable income, while someone who has attained their goal of financial independence may have maximised their capital gains allowance and done some tax-efficient retirement planning.

Take control of your time

Your definition of financial independence may be being in charge of how you spend your time each day. Enjoying what you do for hours on end can be better than any financial return. So while you may not have quite reached your ultimate investment target of maintaining your ideal lifestyle without a monthly paycheck, having the freedom to spend your time how you want is worth a great deal.             

Promote the same values

Becoming financially independent is easier if the rest of your family shares the same goal and beliefs. Does your husband or wife have a similar attitude to saving, investing and risk as you?     

Encourage your children to grow up to be financially independent and manage their own money. Offer them support but don’t let them grow up always expecting a financial hand-out or free board. You’ll never gain financial freedom and neither will they.     

 

Retirement planning in the time of Covid-19

Wednesday, June 24th, 2020

The COVID-19 outbreak has signalled the dawn of a worrying time for everyone. As well as anxiety about our own health and the wellbeing of our loved ones, many of us are understandably worried about the financial future. Recent stock market turbulence is concerning for all investors, but particularly for those who are in defined contribution pension schemes and looking to retire in the near future.

The important thing is not to panic. Although we are in very uncertain times, reckless actions could severely endanger our financial wellbeing in the future. Here are some things you should consider if you’re planning to retire in the next few years:

Don’t cash out suddenly

Cashing out in a panic could severely damage your financial security in retirement. Although no one knows when the markets will recover, selling now could mean that you are taking your pension at the bottom of the market. It’s likely that financial markets will regain their strength over a period of time, even if we don’t know how long this could take.

What’s more, cashing out will mean that you’re likely to end up paying lots of unnecessary tax. In most cases, only the first 25% of a defined contribution is tax free; the rest is taxed as income. Chances are you’ll end up with a gigantic tax bill.

Remember that pensions aren’t the only form of retirement income

Retirees frequently use other assets such as cash ISAs, cash savings and rental income to provide for their life in retirement. If you have any other assets, you could use these to fund the first few years of your retirement in order to give your pension time to recover. The benefit of this would be that you wouldn’t be drawing from your pension pot when the markets are low.

If you don’t have any other assets to fund your retirement, you could consider delaying your retirement or working part time for a period. Hopefully, this would allow the markets time to recover, giving you more confidence when you finally do leave the workforce. 

Watch out for scams

Unfortunately, some unscrupulous people see times where people feel financially vulnerable as an opportunity to exploit them. There has been a lot of fraud since the start of lockdown and it has been reported that people are being scammed through being sold non-existent pension plans. 

Whatever you’re planning to do with your pension savings, it’s vital to check that the company you’re planning to use is registered with the FCA. Keep on your toes and if you see anything that looks too good to be true, it probably is.

June Markets in Brief

Wednesday, June 3rd, 2020

May saw a more positive month for most of the stock markets we discuss, despite the COVID-19 pandemic taking centre stage across the globe. India and Hong Kong aside, all major stock markets made gains during the month. 

The world is tentatively beginning to emerge out of lockdown and there are some signs that the engines of the world’s economies are beginning to restart. These might serve as some consolation for concerned investors, which – given the current crisis – must include anyone with stocks, shares or an invested pension.

However, it must be emphasised that we are still far from a fully fledged economic recovery. Although there are some promising signs, like early flowers in Spring, these signs could be quickly killed off by the economic frost that would result from a second outbreak of COVID-19. Away from the stock markets, the global unemployment crisis deepened to depths not seen in living memory and many large firms remain just a rescue package away from collapse.

UK

The UK continued its economic stimuli policies during the month as it “fought back” against the global pandemic. Rishi Sunak announced that the furlough scheme would be extended until October, although companies will be asked to contribute an increasing amount to the cost. 

May saw the return to work for many after Boris Johnson announced the gradual easing of lockdown restrictions on 10 May. However, the high street remains closed for ‘non-essential’ shops until 15 June, and the possibility that consumers – in the words of M&S boss Steve Row – “may never shop the same way again.” Lifestyle retailer White Stuff were among the latest to announce significant job cuts over their 120 UK stores.

There have already been many job losses across the country and there are expected to be many more as the furlough scheme winds down. Boris Johnson has hinted at a post-crisis jobs programme which would create “high class jobs for the country”; the success of such post-crisis recovery strategies will be vital as the country emerges from the crisis. 

The FTSE rose by a promising 3% during the month to end up at 6,077, and the pound fell by 2% against the dollar to close the month at $1.2343.

Europe

The economic picture across the channel certainly wasn’t a rosy one. During the first quarter, the Eurozone economy contracted by 3.8% and the European Commission forecasted a “deep and uneven recession.” 

There was plenty of grim company news. Renault announced 15,000 job losses around the world, despite the French government’s announcement of an €8 billion rescue package for the car industry. Elsewhere, Nissan closed its Barcelona plant with 3,000 jobs lost.

In spite of all this bad news, the continent’s major stock markets both finished up, possibly bolstered by the €750 billion EU rescue package announced during the month; the German DAX was up by an impressive 7% to 11,587 and the French stock market rose 3% to 4,695.

US

The world’s largest economy suffered a tough month. By the end of May, nearly 40 million Americans were claiming unemployment benefits and Jerome Powell, Chairman of the Fed, announced that the economy could contract by 20-30% during the crisis. 

General Electric announced massive job cuts that could amount to 16,000 jobs and car rental firm Hertz filed for bankruptcy protection after the pandemic caused demand to “collapse”.

Declining retail sales and a record fall in manufacturing output have fanned the flames of this hard economic picture. However, there are faint signs of optimism that new economic opportunities will emerge for innovative firms after the crisis. Thankfully, America’s stock markets echoed this optimism rather than the discouraging headlines. The Dow Jones index enjoyed a good month and rose by 4% to 25,383.

Whatever you’re planning to do in June, we hope you have a pleasant month. In spite of the gloomy news and uncertainty, in May the UK enjoyed the sunniest calendar month on record. We hope that this fine weather continues during June and that you’re able to make the most of it, even if it’s just from the comfort of your garden.

The effects of Covid-19 on the housing market

Wednesday, May 20th, 2020

The coronavirus pandemic will have long term implications for all aspects of the residential housing market. As restrictions are gradually lifted, the sector is starting to operate again, albeit under social distancing measures. But with the Chancellor confirming that it is “very likely” that the UK is in a significant recession, consumer confidence will be slow to return.    

Development activity 

Although the official guidance allowed construction sites to remain open during lockdown, the majority of large housebuilders shut down due to the difficulty of maintaining social distancing. They also closed sales offices and show homes.

This halt in construction is inevitably going to cause a fall in the delivery of housing and the number of new build sales this year. Data from industry analysts, Glenigan, showed that, as of 31st March, construction had been stopped on sites with capacity for 193,000 homes in England, the equivalent of 79% of the total supply in 2018/19.

But with sites now re-opening and local councils permitting extended working hours to allow the extra time to implement safe social distancing measures, work is beginning again. Under revised guidelines, new homes developers in England have also been able to start reopening show homes. 

Land market

Although the land market had strengthened after the general election result, the coronavirus outbreak has had an adverse impact on it. Some existing land deals went through but housebuilders stopped most new land buying activity.

Of course, any changes in the land market will be linked to what happens in the wider housing market. The number of residential transactions has already significantly reduced. In 2019, 1.175 million house purchases were recorded. This year, Knight Frank predicts the figure could be as little as 734,000, while Savills places its estimate in the range of 566,000 and 745,000. If the housing market is slow to recover due to economic uncertainty, this may cause land values to drop.

Planning and land supply 

In contrast, the planning system has not been so severely affected, with the flow of land still going through. This is partly because the Coronavirus Bill made temporary provision for councils to meet without councillors being physically present. As a result, some planning decisions have still been made and sites have received consent for residential development. 

The outbreak has had an impact, however, on the Local Plan process, with all examination hearings having been postponed. This could mean a significant number of areas may see delays in the adoption of their Local Plans.    

New build sales demand 

Housebuilders will certainly want to start making sales as soon as possible to maintain cash flow. To encourage this, more buyer incentives may be offered. There may also be more Build to Rent developments. One issue to watch out for is that some properties may no longer be eligible for the Help to Buy scheme, as a result of the delays. After April 2021, the scheme will be subject to regional value caps, and only available to first-time buyers.

What will happen to house prices? 

According to a report by Which?, house price growth will stagnate in the short term and price data may fluctuate for some time, given the low number of transactions going through. Savills offers two different predictions depending on the coronavirus outcome. The first forecasts a 5% drop in prices this year and a 5% rise in 2021, while its second forecasts a 10% fall this year and a 4% rise in 2021. It seems it’s going to be a case of closely watching how the situation develops and how the market responds.

What will the new normal look like?

Wednesday, May 13th, 2020

The Covid-19 outbreak has provoked a crisis of such enormous proportions that things will not just go back to the way they once were. When some semblance of normality emerges, things will be different. We are set for huge social, cultural and economic changes. It’s unlikely that we will suddenly wake up in a world where anxieties around the crisis have vanished into thin air. Rather, a new normality will gradually emerge from its ashes during a transitional period that could last for an extended amount of time. 

When lockdown restrictions are eased, it’s probable that we will enter a phase where life will hang between normality and lockdown. The government may again assert its need to tighten the rules depending on infection rates or the capacity of the health system. The operation of some businesses may be severely restricted and some social distancing rules may remain for some time. In short, we are not going to be able to draw a line in the sand behind coronavirus when the lockdown ends, as much as we may like to.

How the world will look after the outbreak is difficult to call. It depends on many factors, for instance whether or not countries are able to reduce infection rates around the world, and how long it takes scientists to formulate an effective vaccine.

However, there are a few changes that we can infer from what we have already seen during the crisis.

Working culture seems set to change for good. For many, social distancing has seen a complete shift to working from home. Technologies like Zoom and Slack have enabled many to move seamlessly into this way of working. If employees can maintain the same kind of productivity while working from home, there will probably be a large shift towards remote working in the long run. 

The impact of large scale remote working would be huge. London and Manchester would no longer see their daily deluge of commuters from the surrounding area. Experts have hinted that this could change the entire makeup of the country. Rural villages and suburbia could again become a centre of working life. Big city offices may only host a businesses’ core staff and be used occasionally for whole-company events. Flexible office spaces or co-working spaces could become a regular feature in suburbs, towns and villages.

The Covid-19 outbreak also looks set to accelerate the country’s shift to becoming a cashless society. People are being discouraged from using cash as it’s thought that cash can carry the virus, raising the risk of transmission. The crisis may mean that we are increasingly accustomed to using contactless to make transactions and this could continue even after a vaccine is found. 

 

How long until the economy recovers?

Wednesday, May 6th, 2020

The COVID-19 crisis will push the country into an unprecedented economic slump. Just how big the slump will be is currently unknown but experts’ predictions aren’t optimistic. One independent forecast by the Office for Budget Responsibility (OBR) warned that the economy could shrink by a record 35% by June, in the case of a three month lockdown followed by three months of further restrictions. This is just a prediction, but one thing for certain is that the lockdown will have serious economic implications.

When we start to talk about recovery, things begin to get even murkier as the impact of the current lockdown is unknown. We don’t know for certain how far the economy will fall or whether firms will be able to cope with any partial restrictions when things do begin to return to normality. What’s more, it’s possible that there could be further lockdowns to control future outbreaks before a vaccine is found. 

The government has said that it is “not just going to stand by” and let the economy slide. They have said that they plan to protect millions of jobs, businesses and self-employed people. This said, there is a limit to just how much they can do. The OBR predicts a further rise in the amount of borrowing by the end of the year up to £273 billion, which would represent the largest deficit as a share of GDP since World War Two. 

Robert Chote, chairman of the OBR, said that a drop of 35% in the economy would be “the largest in living memory.” The public body also predicts that unemployment will rise by 2.1 million to 3.4 million by the end of June. This would put the unemployment rate up to 10%, a level not seen since the mid 1990s. 

The total economy is set to contract by almost 13% in 2020. To find an economic shrinkage of a similar size, we need to go back much further than the 90’s or even the Second World War. The last time the UK economy declined by this amount was in 1709 when, again, nature was to blame. ‘The Great Frost’ struck Europe, killing hundreds of thousands and resulting in widespread famine across the continent.

Despite all this doom and gloom, the OBR does expect the UK economy to get back to its pre-crisis growth trend by the end of 2020. They also predict that unemployment will start to  fall, easing to around 7.3% at the end of the year.

Looking further into the future, a large amount of public debt will be the economic legacy of COVID-19. Public debt is expected to remain at 84.9% of GDP in four years’ time after peaking at over 100% by the end of this financial year. Whether this will mean a return to austerity remains to be seen. The UK could place a greater emphasis on tax rises to generate revenue, which could see a rise to corporation tax or higher rate income tax.

May market commentary

Wednesday, May 6th, 2020

Right now, even a week seems a long time in the news agenda. Remembering the end of March, when we wrote our last Market Commentary, feels like looking back into a different era. 

Reflecting back, how did we leave March? With the US having overtaken China as the country with the most confirmed cases of coronavirus: with the UK’s Prime Minister, Health Secretary and Chief Medical Officer having all tested positive for the disease – and with world stock markets having suffered their worst three months since 1987. 

“The figures that follow will not make for pleasant reading,” we wrote. “It is scant consolation that they would have looked much worse in the middle of the month, before governments around the world rushed to put stimulus packages in place to protect their economies and businesses”.

Well, there’s still plenty of bad news in this commentary. Both China and America reported sharp falls in their first quarter GDP – in China’s case, the first fall since they started recording quarterly figures in 1992 – and the figures for the second quarter will be far worse. Whichever organisation you turn to – the World Bank, the International Monetary Fund, the ratings agencies – they are all making dire predictions. The IMF, for example, is forecasting the worst economic depression since the 30s. 

Despite this, world stock markets have risen: all the markets we cover in this commentary were up during April. 

Of course the world will look very different when we finally emerge from this crisis. With the Times predicting we’ll need to be at an airport four hours before our flight – for medical screening as well as security – we’re glad we didn’t choose a career in the airline business this morning. 

But where there is change there is also opportunity: new companies will find new ways of bringing new products to new markets. Let’s look at all the details from April – a month when the Prime Minister survived three days in intensive care when, “it could have gone either way” and became the father of a baby boy – and see if we can find some light amid the gloom. 

Coronavirus: Fighting Back 

Almost without exception, countries around the world have put stimulus and rescue packages in place to protect businesses and jobs. In the UK – following widespread criticism of the banks – Chancellor Rishi Sunak has said the Government will now guarantee 100% of loans to small companies, up to a maximum of £50,000. These ‘bounce back’ loans will be available from May 4th. 

For bigger firms, the Government will continue to guarantee 80% of the loans, with companies whose turnover exceeds £45m now able to apply for up to £25m of finance, and companies with a turnover of more than £250m eligible for up to £50m of finance. 

The job retention scheme also swung into action, with the UK Government effectively employing a million extra people on the first day it was in force. 

In the US, the Federal Reserve has perhaps gone even further, offering to buy debt from big companies, helping out local and state governments and lending directly to small and medium sized businesses. These loans are over a four year period – perhaps an indication of how long the Fed believes some companies will take to get back on their feet…

These measures represent a huge commitment on the part of governments: for example, the Guardian estimates that Europe’s rescue package is worth a combined €1.7tn (£1.6tn). They will all need to be paid for one day and – inevitably – there will be countries who struggle with the increased debt burden. You suspect that the impact of coronavirus will be felt long after someone has found a vaccine. 

UK 

The UK headlines at the beginning of April made universally grim reading. ‘A fifth of small firms will run out of cash.’ ‘One million people apply for universal credit.’ ‘Sunak shakes up loan schemes amid widespread criticism of the banks.’ 

…And that was before you went anywhere near the nation’s high street.  Depressing headlines from the retail sector included: ‘March was the worst retail month on record,’ ‘Debenhams facing administration’ and ‘Oasis and Warehouse go into administration.’  

There was plenty more bad news throughout the month and there will undoubtedly be more to come. As Sir John Timpson – of the eponymous high street chain – said, “some household names will simply disappear”. 

As we noted above, the UK Government will now guarantee 100% of loans to small businesses up to a maximum of £50,000. This may turn out to be the most important business initiative of the whole crisis: it will mean that thousands of small companies that might have otherwise failed will now survive the pandemic. 

Yes, it is hard to find good news in the short term – although cheaper clothes and fuel did see UK inflation fall to 1.5%. The figures for the first quarter will undoubtedly show a sharp fall in UK GDP, and the current predictions are that it could fall by anywhere up to 35% in the second quarter. In the middle of the month, the Guardian was predicting up to 2 million job losses. 

But, as the Prime Minister said in his briefing on 30th April, the UK appears to have passed the peak of the first outbreak. The challenge now is to relax the lockdown and re-start the economy without risking a second spike. As the Chancellor said, the UK came into the crisis with “a fundamentally sound economy”. Like him, we are confident that the country – and its economy – will bounce back. 

The FTSE 100 index of leading shares echoed that optimism. Despite falling 200 points on the last day of the month, it ended April up 4% at 5,901. The pound was up by 1% against the dollar in the month, closing at $1.2587. 

The Brexit Negotiations 

Do you remember the good old days? When the Brexit negotiations dominated the news agenda? When Theresa May brought her Withdrawal Bill back to Parliament three times? When every vote – in the Commons or the courts – seemed crucial? 

The Brexit negotiations are still ongoing. Lest you have forgotten, an agreement with the EU is due to be reached by the end of the year. As things currently stand, if no agreement is reached, the UK will begin trading with the EU on World Trade Organisation rules. 

The talks to find an agreement duly resumed after Easter and by the end of the month both sides seemed to accept that some – albeit limited – progress had been made. Inevitably, there were calls to extend the current deadline: Norbert Röttgen, chair of the Bundestag’s foreign affairs committee and an ally of Angela Merkel, told the Observer that the deadline would need to be extended by two years. 

Not so, said Michael Gove to the Telegraph, as he explained that the current crisis was exactly why a deal should be wrapped up quickly. 

We will, of course, continue to keep you updated. One thing that is certain, though, is that UK/US trade talks have been postponed indefinitely while the two countries deal with coronavirus. 

Europe 

It was a while coming, but in the middle of the month, the European Union finally agreed a €500bn (£434bn) rescue package for countries hit by the pandemic, with an opinion poll showing that German voters were in favour of supporting the economies of Spain and Italy. 

How far the money will go is questionable, with the chairman of French car giant Renault saying the company needed €5bn (£4.3bn) “to protect it from damage from the coronavirus pandemic”. He added that they “are working on the idea of bank loans that would be guaranteed by the state”. 

As we mentioned above, the combined bailout packages put in place by the individual European countries run into the trillions of Euros. European economies will need to revive quickly and as the month ended, there were signs of a partial easing of lockdown measures in several countries. 

Confidence will also need rebuilding, with consumer confidence falling to levels last seen in the financial crisis of 2008, and business confidence in Germany described as ‘catastrophic.’ 

The Ifo Institute think tank’s business climate index slumped to 74.3 in April from 85.9 in March – a level never previously seen. “Sentiment at German companies is catastrophic,” said Ifo president Clemens Fuest. “Companies have never been so pessimistic. The crisis is striking the German economy with full fury”. 

As if to reinforce this, the last day of April brought the news that the Eurozone economy had shrunk at a record rate, with GDP falling by 3.8% in the first quarter of the year. 

Despite all the gloom, the leading European stock markets rose in April, dragging the smaller markets up with them. The German DAX index was up 9% to 10,862 while the French stock market rose 4% to 4,572. 

US

For as long as we have been writing this Bulletin, we have included almost the same sentence in every section covering the US: ‘last month saw the US economy add another 150,000 jobs.’ Or words and numbers to that effect…

Nothing more starkly illustrates the impact of coronavirus on the world’s biggest economy than April’s jobs figures. On 3rd April, we noted: ‘US jobless claims soar to 6.6m as 236,000 test positive.’

On the last day of the month it was reported that 3.8m Americans had filed jobless claims in the last week, down from 4.4m in the previous week. Over the last six weeks, approximately 30m Americans have lost their jobs as some states have all but shut down their economies, with the country now having more than a million confirmed cases of the virus. 

The US government has, of course, sought to counter this with an unprecedented fiscal and monetary stimulus, passing bills worth around $3tn (£2.4tn), while the Federal Reserve has slashed interest rates, pumped trillions of dollars into the economy and started lending directly to small and medium sized companies. 

Will it work? The President is confident that the economy will ‘bounce’ back quickly and that the US will shortly be testing 5m people a day – against a current figure of around 300,000. 

In company news, Disney stopped paying 100,000 of its workers but announced that it had added 50m subscribers in five months to its subscription service, Disney Plus. Confirming the ‘ill wind’ theory, Netflix said it had added 16m subscribers during the crisis. 

Ford reported that it had lost $2bn (£1.6bn) in the first three months of the year as sales dropped 15% and Starbucks confirmed sales were down 10% in the first quarter – but 50% in China. However, lockdown was good news for Mondelez, owner of Cadbury, Oreo and Triscuits, where quarterly sales surged by 15%. 

You know what they say: ‘When the going gets tough, the tough start snacking…’ 

The Dow Jones index – in line with other world stock markets – was much more Oreo Cookies than Ford or Starbucks, rising by 11% in the month to finish April at 24,346. 

Far East 

What impact did the virus have on the Chinese economy? Economists and forecasters waited for China’s first quarter GDP figures to be announced, with some pundits expecting a fall in the country’s GDP of up to 10%. 

In the event, the figure was 6.8% – the first quarterly fall since the country started recording quarterly economic data in 1992. 

“This will translate into permanent income losses, reflected in bankruptcies and job losses,” said Yue Su at the Economist Intelligence Unit. 

…And not just in China. As we will see below, the virus will hit emerging economies especially hard, with the International Monetary Fund predicting that the wider Asian economy will see no growth this year, for the first time in 60 years. The IMF says the region will “face the worst recession since the Great Depression”. 

This was reflected to some extent in HSBC’s first quarter profits, which halved to $3.2bn (£2.6bn) as the company announced that it would put the ‘vast majority’ of its planned 35,000 redundancies on hold due to the ‘exceptional circumstances.’ 

In line with all the other leading stock markets, the four major markets in the Far East all made gains during April. South Korea led the way, rising by 11% in the month to 1,948. The Japanese Nikkei Dow index rose 7% to 20,194 while the markets in China and Hong Kong were both up by 4% to 2,860 and 24,644 respectively. 

Emerging Markets 

It hardly comes as a surprise but April was a worrying month for emerging and developing economies around the world. Clothing manufacturers – among the biggest employers in Asia – gave a dire warning of the impact the virus would have on employment. Sadly, the clothing sector was far from alone in issuing warnings. 

The International Monetary Fund expects 170 countries (out of 195 recognised by the UN) to experience a decline in economic activity per person this year, which will translate into a direct fall in average living standards. The World Bank expects that the virus will mean South Asia – home to economies such as Bangladesh, Pakistan and Sri Lanka – will see its worst economic performance for 40 years. 

Despite this, Facebook chose to place what the papers described as ‘a $5.7bn (£4.6bn) bet on India’s richest man.’ Facebook is buying a 9.99% stake in mobile internet company Reliance Jio which will give it a major foothold in India, where WhatsApp already has 400m users and is about to launch a payments service. 

And it was the Indian stock market that led the way, turning in the best performance of any of the markets we cover in our monthly commentary. It was up 14% in April to end the month at 33,718. The Brazilian market was up 10% to 80,506, while the Russian stock market rose 6% to close at 2,651. 

And finally…

April got off to the worst possible start for beer drinkers, with news that up to 50m pints of beer could go to waste if lockdown lasts until the summer. The estimate was made by the Campaign for Real Ale (CAMRA), based on the amount of beer the UK’s 39,000 pubs will have in their cellars and the length of time it takes to turn bad. Tom Stainer, chief executive of CAMRA, told the BBC it was “a tragic waste”. 

April wasn’t a month that went terribly well for Brant Walker either. Brant is the mayor of Alton, a small town in Illinois with a population of just under 30,000.There were widespread reports of residents ignoring lockdown and social distancing, so Mayor Walker quickly ordered the local police to ‘vigorously enforce’ the rules. 

The next day, Alton’s finest broke up a party at the town’s Hiram’s Tavern, with revellers “clearly disregarding” the Mayor’s executive order. One of those at the illicit party was a lady called Shannon – unfortunately, Mayor Walker’s wife. “I am embarrassed and apologise to the citizens of Alton,” said the mayor in a statement. “My wife … showed a stunning lack of judgement”. 

Oh to be a fly on Mr and Mrs Walker’s kitchen wall…

And quite possibly on the cucina wall of Signore and Signora Faggiani as well. Bored with lockdown, Fabio Faggiani decided to run a full marathon, inside his apartment. He did this by running round his dining room table: completing the full distance of 26.2 miles meant that Fabio had to lap the table 2,800 times. 

There is no word yet on whether Signora Faggiani was trying to watch television at the time. Or, indeed, on whether the people in the apartment below were cheering Fabio on. 

We might, in previous bulletins, have jokingly referred to Messrs Walker and Faggiani as ‘heroes.’ April brought us a real hero. 

We refer, of course, to Captain Tom Moore, who wanted to walk 100 laps of his garden before his 100th birthday and, in so doing, perhaps raise a “bit of money for the NHS”. As we write this – very appropriately, on Tom’s 100th birthday – that ‘bit of money’ so far amounts to over £31m. Happy birthday, Colonel Tom: never was a promotion more richly deserved.  We salute you!