Issue 236 | 6 July 2020 - Turner & Townsend alinea

Economic Week In Review | Issue 236 | 6 July 2020

UK news

Brexit negotiations finished early following “significant disagreements” on a “number of important issues” such as fisheries. Five weeks of face-to-face talks are planned for July and August.
Improving services sector | Services PMI rose to 47.1 in June from 29.0 which had been recorded in May. One in four providers reported that pent-up demand had caused an expansion of new business.
Inflation worries | Andy Haldane, the Bank of England’s Chief Economist, voiced concerns that the economy is bouncing back faster than anticipated. If spending levels are maintained as forecast at the beginning of May, the economy will be 3% larger and inflation could be 1% higher than forecast. Other members of the Bank of England argued that labour concerns could prolong weakness.

Global news

China’s markets | The CSI 300 reached a five-year high as services recovered signalling a rebound in the economy having controlled the spread of Covid-19.
Eurozone recovery | IHS Markit’s Composite PMI for the Eurozone improved beyond expectations, from 31.9 in May to 48.5, nearing the marker for growth. A reading of 47.5 had been expected.
Spain returns to work | The number of furloughed workers in Spain has fallen 49% from its peak of 3.4million workers. The unemployment rate is still expected to increase by nearly 7% by the end of the year (to 20.4%).
Global manufacturing PMI by JPM showed a record increase of 7.9 points to 47.0 in June marking its highest reading since January. In China the index rose from 54.5 in May to 55.7 in June, its fastest improvement since November 2010. However analysts point out that the rise is not commensurate with the record contraction seen in February, indicating only “a partial recovery of lost output”.

Materials and commodities

Manufacturing | According to Make UK, three-quarters of manufacturers in the UK are to make cuts to job numbers this year. Some large manufacturers such as Rolls Royce and Airbus SE have already announced large redundancy plans. The manufacturing sector supports 2.9m people.
Steel | Celsa has achieved the first in a new series of emergency loans provided by the government to companies seen as strategically important. Celsa provided 50,000 tonnes of reinforcement for Crossrail and 250,000 tonnes for Hinkley Point C. Legally-binding conditions of the loan include a commitment to protect jobs, and restraint in executive pay.
Copper | An “avalanche of cases “ is pushing the Chilean copper industry “dangerously close to the edge” and will limit output for the year, especially if mines are to pause to increase safety.

Construction and property news

Build, Build, Build | In his latest speech, Boris Johnson announced plans to make “radical reforms” to the planning system and the acceleration of £5bn worth of infrastructure projects.
Access to goods and services in the UK construction industry has improved, according to the latest Business Impact of Covid-19 Survey from the ONS:

Friday to Friday

	Price / Index	Week % change	Annual % change
FTSE 100	6,157.30	-0.03	-18.48
FTSE 250	1,730.03	1.10	-11.97
Nikkei	22,306.48	-0.91	2.58
CSI 300	4,419.60	6.78	13.52
S&P 500	3,130.01	4.02	4.67
Nasdaq	10,207.63	4.62	25.07
CAC 40	5,007.14	1.99	-10.49
Dax	12,528.18	3.63	-0.32
$ per £	1.2465	1.06	-0.30
€ per £	1.1086	0.79	-0.57
Gold £/oz	1,418.25	-1.24	26.92
Brent Oil $/barrel	42.80	4.34	-33.36

“Given the strong forces acting on inflation in both directions, the MPC is being especially vigilant in monitoring trends in inflation expectations”

Andy Haldane, Bank of England

Weekly Summary

Possibly led by further opening up of many global economies, PMI figures show encouraging signs, with vast decreases to the rate of contraction across industries. However, whilst many of the indices are nearing the vital 50.0 stability marker, few are showing growth.

It is encouraging to see the latest ONS survey showing an improvement in sourcing of goods from within the UK but as the virus continues to seriously affect many parts of the world which produce key materials, supply chains should be closely watched.

With several large profile and sizeable
job losses making the headlines this
week, many are eagerly awaiting an announcement on jobs support next week from the Chancellor, which was promised by Boris Johnson. The furlough scheme is set to begin tapering off in August, before coming to an end in October and supports 9.3 million workers.