13th July 2020
Fast and freewheeling – markets move as economies slow
As they have for most of the year, pandemic developments dominated the economic news flow last week.
Though restrictions continue to ease here and in Europe, the virus is now spreading at a quickening pace
in the US, from the previous hotspots in the north-east to the south and west. That renewed virus threat
is undoubtedly impacting the economy once again – just five weeks after the US began to open up. The
high-frequency data (tracking daily movement, travel and leisure purchases, etc.) are showing a drop in
economic activity, as one would expect. JP Morgan’s research showed the charts below, with credit card
spending flat-lining and the US rush-hour now the most impacted across nations. Of course, we should be
careful when looking at these sorts of data.
Sunak spends big to kick-start the economy
Rishi Sunak’s short time at the Treasury has been a trial by fire. A year ago, the current Chancellor of the
Exchequer was Chief Secretary to the Treasury under former Chancellor Sajid Javid. But after Javid’s
controversial sacking in February, Sunak’s foot was barely in the door of Number 11 before the global
pandemic shuttered Britain’s economy. Less than five months into his tenure, the second youngest
Chancellor over the last century has contended with the deepest recession in Britain’s modern history.
He has, according to his colleagues in Whitehall and wider public opinion (a recent poll puts his net approval
at +41), performed admirably. In his latest appearance before Parliament, Sunak drew applause as he
unveiled yet another wave of fresh fiscal stimulus: a £30 billion job support package plus an additional £33
billion in previously unaccounted for public spending. It comes after the £130 billion fiscal package
announced in March and leaves total pandemic-related spending at £190 billion so far this year. That
spending is alone 9% of UK GDP, and puts total government borrowing on course for £350 billion this
Japan: The Tokyo go slow
Like all nations, Japan faces a delicate balance between economic and health concerns in the wake of the
pandemic. But until last month, the powers that be in the world’s third largest economy thought it was a
balance they had struck perfectly. Prime Minister Shinzo Abe declared triumphantly at the end of May that
the “Japan model” had “all but brought this epidemic under control in the last month and a half,” and
subsequently ended the national state of emergency. Japan earned plaudits on the international scene for
the fact that, even without a compulsory lockdown or significant testing regime, virus cases have been
limited to around 20,000, with under 1,000 deaths. Shops, clubs and entertainment venues were allowed
to open, and the economic recovery had begun. At the start of June, cases were averaging below 40 a day.