Covid-19 Lockdown to be Extended and Tightened

Covid-19 sounds lke one of those really technical names scientists develop, having understood the gene type and infection mechanism, doesn’t it?

The sad truth is that it is just a shortening of Corona Virus Disease 2019. How disappointing!! That could have been made up by an arts graduate, not some eminent senior professor!

So far, the Government has handled this outbreak with a shrewd political approach, gradually tightening up things as the public acceptance grew. As the numbers of infections and deaths increased, the official response increased from ‘wash your hands’ to ‘social distancing’. Next, it was ‘closure of pubs and clubs’, until finally we reached ‘lockdown’. This step-by-step tightening meant that the public understood the ever-worsening situation required stronger reactions. However, it was entirely politically driven. The scientific need for a much earlier lockdown was clear for all to see.

History will not be kind to Boris and his team.

It was obvious from China and Italy that containment as soon as possible would reduce the death toll by thousands. Bold decision making was necessary. However, the Government’s dithering almost made Mrs May look decisive and authoritarian. I said ALMOST.

Many many thousands of British deaths could have been avoided and sadly were not. They will happen as a direct result of slow and incorrect decision making. It can only be a matter of time before the population starts to get angry. This will be Boris’s legacy – which is a shame for a likable chap so early into his premiership.

As an aside, we wish BoJo a speedy recovery, and hope he is self-isolating from Carrie, what with her, er, having a bun in the oven.

What now then?

It is clear that the three week lockdown was another of the Tories’ attempts at not scaring the British people. The reality is that from infection to symptoms to hospital to intensive care to death is a 3 or 4 week process. And so at the end of the three week lockdown, the numbers of infections will not be accelerating as quickly, but they will continue at a sickening pace, as the infections before the lockdown was imposed reach their grizzly conclusion. By the three week date of 13 April (Easter Monday), we are likely to be seeing 1000 deaths per day. This is not the background for a relaxation of the curbs. Quite the opposite. Despite the British public’s unwillingness to be bossed around too much, we see tighter controls and a much longer timeframe for the lockdown.

Total Deaths in Italy, from worldometers.info

The sad sad chart above lists the total number of deaths in Italy. Even after three weeks of a proper lockdown, the numbers continue to climb at close to 1000 people per day. This is where we will be in 2 weeks.

Yesterday, 181 people died from Covid-19 in UK. That is the equivalent of an Airbus A320 going down. And yet the numbers didn’t make it into the first 5 minutes of news bulletins. When we reach 1000 people dying per day, that will be like 2 Boeing 747’s crashing in the UK every 24 hours! It is hard to overstate how serious this all looks.

The number of infections per case needs to be reduced from 2.5 each to less than one new case for each live infection. Otherwise, the dreadful growth goes on.

The restrictions will be substantially extended, and will be considerably tightened.

Iran = World War 3 – NOT! Or At Least, NOT YET!

We all know that the Middle East is a Tinderbox – though I wonder just how many people today would recognise such a thing if it hit them on the forehead?

Tinderbox, from oldandinteresting.com

So once you come round, now you can identify with what you have just been bludgeoned!

How will last night’s reprisals work out? Well it is fair to say that Tehran had to be seen to be doing something, to show the domestic audience and local acolytes that the leaders aren’t cowed by the US gorilla (yep, I mean you-know-who). But their target selection was fairly low level, and the results not even a pin-prick.

Will Trump reply, or just laugh at them? A big man would stand and smile benignly at the small child who is having a paddy. But this is Trump we are talking about. Oh dear!!

Our feel is that he will wait to see if the Iranians try again. If they do something of real economic consequence, then one can expect a hard strike at Tehran. I hope the ayatollahs have a good bunker.

There is some risk to global oil supplies, and successful attacks on Saudi refineries or shipping would provoke a very sharp response from the US. It would be a short erasing of any Iranian production capacity. However, we do not feel that it would lead to a sustained rise in oil prices. Pipelines can be repaired, and US Shalegas drilling is is very elastic to price rises.

Meanwhile, the markets are calm, down by less than 0.5%. We think that is right. The worst thing for Trump right now would be to appear weak to his electorate, or to blink. Our feel is that Tehran is drinking in the last chance saloon, and just ordered another round…….. There is clearly a point at which Trump will be keen to demonstrate to the world that the US economy and US lives are sacrosanct. If the bullets (or missiles) start to fly, then the markets will fall by less than 20% – because everyone, us included, will see very limited global economic consequences, and any falls representing a buying opportunity.

Why did we say “NOT YET”? Where is the real risk here then? If the Russians or the Chinese see an angle for stepping in to control the Middle East, then suddenly it becomes a geo-political play, and then we really are worried!

Have a nice day now!

FTSE Forecast; Brexit Supports, World Economy Undermines

It is that time of the month when we ritually kick ourselves for making what turned out to be a stupid forecast six months ago – and then, without learning from our mistakes – we go on to make a crazy forecast for where FTSE will be in another half year.

Will go up, will go down, but not necessarily in that order

BUT this time, we weren’t so far wrong. Back on 15 April, we had failed to leave the EU on the second deadline, and a new exit-date of 31 October had been decreed. Wisely, or perhaps by luck, we guessed that on 15 October, Brexit might not be established, or the future might be rather worrying. Quote “So we will work on the basis that Brexit is still on-going by October.

Our forecast for 15 October was 7600, quite a reduction from the 8150 we had been predicting for September. Thus, we got the direction right, and a close of 7212 is pretty accurate by our standards.

The Next Six Months

Now for the next six months. British politics are somewhat unpredictable. We think that Boris might just pull it off and squeeze Brexit through tomorrow. The country (or at least 52%) will rejoice….. so there is no way the opposition will allow an election if Brexit goes ahead. Thus our central forecast is that Brexit happens, but then the minority government struggles on for several months until the demand for an election is overwhelming. This could easily be around our forecast date of 15 April 2020. However, a Brexit Deal will create an optimism and gentle release of pent up demand to support the UK economy over the next six months.  Lack of Government interference with new laws will also help!

However, no country is an island. Okay, well some countries are islands. Malta comes to mind. But economically, the future of UK based businesses, with our new, outward looking trade policy, cannot be but affected by the world economy. We foresaw the potential of a recession by year end, and the data published since then has done nothing to change that view. The global economy, from US to China to EU (in that order) is definitely looking soft.

Where does that leave us?

The UK domestic economy should have a surge, this will be countered by weak global growth.

Re-rating

The UK stockmarket, is at rather low multiples of income, given the interest rate environment. This morning, www.dividenddata.co.uk quotes the FTSE100 yield at 4.53%. If / When Brexit is settled, we see scope for yield compression – and hence price rises – justified by the reduced uncertainty and risk.

In summary, we think UK growth will be supportive, global economics will undermine, but an extra boost will be given by removal of the Brexit factor. From a close yesterday of 7182, we see FTSE100 at 7600 on 15 April. This is an increase from the 7200 we expected for Jan – Mar next year.

A Bleak-Midwinter Brexit Recession By Christmas

Oo-er, suddenly the UK economy ain’t looking so good!

The news media are full of speculation about Brexit, and not many of the stories are looking forward to how wonderful the country will be once/if Brexit happens. We can expect more of the same for the next twelve weeks until Halloween.

Are we heading for No-Deal?

At the moment, both sides are digging in, trying to create a tough stance for the benefit of their populations (I hesitate to use the word electors when we are discussing the EU, but you know what I mean). Behind the scenes, it can be assumed that the diplomats and civil servants will see themselves as the grown-ups in the room, and thus be at least looking for common ground.

However, it seems unlikely that a comprehensive new Withdrawal Agreement will be crafted by October. But we can expect enough co-operation to keep the world turning.

So what’s the problem?

The problem is that investment is collapsing. The worst thing for businesses in uncertainty. Life has enough risks when it comes to business investment, without an unseeable future being only 12 weeks away. Similarly, house-buying and car buying are likely to miss out on their usual autumn surges this year.

And after Brexit day, will there suddenly be clarity and light? Nope. There will be hysteria in the media for a few weeks as every little shortage and business malady is blamed on you-know-what. And the effect of this – more hand-sitting and less spending.

What else is happening?

Leader of the Free World

The US is starting to suffer from Mr Trump’s tariffs, to the extent that Jerome Powell has cut interest rates despite full employment. Meanwhile, China is suffering a marked slowdown from the trade war. This has now spread to Europe, which is also teetering on the edge of recession.

Conclusion

The UK is heading for recession – and it is difficult to see when it could end. Domestically, we’ll probably pull out next spring…. but that depends on what the rest of the global economy does. If things keep softening elsewhere, it could be a big one!

PS. The slowdown in Q2 announced today was no surprise, given the stockpiling in Q1 for the original Brexit day, and the factory shutdowns brought forward to April in case of Brexit delays.

Theresa the Timid

PPS. The coming recession will be a direct result of Mrs May’s and Parliament’s timidity over Brexit. If they had gone ahead on 29 March, we’d be pulling out of it by now. The delay to October has just increased the uncertainty and halted the economy for 7 months, tipping us into a recession we need never have had.

It is Pound’s Thrilling and Tense Time. GBP to Rise Whatever Brexit We Get

What is happening to sterling? You’d think it would be thrashing around like an angry hornet stuck in a beehive hairdo.

EURGBP remains calm

GBPUSD Remains Calm

But it remains calm , as has done since last autumn. Under normal circumstances, GBP acts like a divorce-child, torn between Europe and the US. Sometimes it goes with the Euro, on other occasions it sticks with the US Dollar. And very infrequently, enough happens in UK for it to make a simultaneous move against both its “parents”.

So what is happening now? Are currency traders;-

a) woefully short-sighted and not interested in Brexit, as it won’t happen today or tomorrow?

b) utterly complacent about Brexit and not factoring it in the price at all?

c) estimating that the percentage chance of No-deal has not changed, and so the effect on GBP has not altered?

But here is a little heads-up!

Currencies do move on matters other than Brexit. Hard to believe isn’t it, but there are a whole range of different inputs into a currency price? You know, GBP did move up and down before Brexit – and it will continue to trade after Brexit has either died or been settled.

Since our last currency forecast on 5 February, “Cable To Go Higher On Brexit”, the Brexit debate has moved on a little, in that it now appears to be more binary – No Deal or No Brexit. More on this tomorrow (sorry).

The world economy has slowed too. US Non-Farm Payrolls (our fave number) were weak in February. Europe looks weak too, with German industry catching a cold from China. Let’s hope that doesn’t become Asian ‘Flu. Meanwhile, the UK economy continues to trundle along with record employment and flaccid inflation. Suddenly, that isn’t looking too bad.

Interest rate rises seem to be off the board in all main economies, with the chance of more QT in the Euro Zone.

So to the forecasts.

a) No-Deal Brexit is probably 20% in the price of GBP already. If it happens, then watch out for some weakness against USD in the short term, but strength once the media-highlighted logistics problems are resolved, the strong UK fundamentals come into play.

We see GBPUSD at 1.2800 in a month and at 1.4200 in 6 months under this scenario.

Against the EU, we think No Deal is nearly as bad as for Europe, and so the EUR will maintain its level with GBP on a one-month basis at 0.8600. Over 6 months, we seen GBP stronger against EUR, with EURGBP at 0.8200 in September.

b) No-Brexit (aka Long Delay) then we see the same forecast levels in 6 months (driven by fundamentals), of GBPUSD at 1.4200 and EURGBP at 0.8200, but with a step up (provoked by guess what) rather than a dip in the meantime.

 

PS. Well done if you liked our pounds shillings and pence pun in the title. No prizes for spotting it though.

Money!