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CLIMBING UK COVID-19 CASES RESULTED IN STOCK SELL OFF ON MONDAY

In the UK Covid-19 vaccination numbers continue to climb with 46.3m first vaccine doses given and 35.9m second, both up 400,000 in the last week

This puts the UK at a number of 121 doses per 100 with the US at 101, Germany 102 and France at 94. Saying that cases numbers are climbing, this with ‘Freedom Day’ yesterday. Case numbers are up 43% week on week within the UK with many business having to react to a world of isolating staff.  It was reported that the NHS COVID-19 app told over 500,000 people to self-isolate for up to ten days 2 weeks ago with many expecting this to climb. Staff shortages are causing closures and disruptions across industries including retail, hospitality and manufacturing businesses. UK chief medical officer Chris Whitty said the pandemic “had a long way to run in the UK” and warned that: “We’ve still got 2,000 people in hospital and that number is increasing. If we double from 2,000 to 4,000 from 4,000 to 8,000, 8,000 and so on it doesn’t take many doubling times until you’re in very, very large numbers indeed” Saying that it is not just here in the UK but elsewhere which seems to be in the herd immunity phase with confirmed cased in the US climbing 64% week on week.

It is this above news on climbing Covid-19 cases which yesterday resulted in a stock sell off. This drop in equity markets impacted markets across the UK, Europe and the US as investors fears grew that these climbing case numbers will hamper economic recovery.

This drop resulted in GBPEUR levels dropping to the lowest levels seen in 6 weeks yesterday. Sterling Euro exchange rates have dropped over the last 7 days by 1.5% meaning a £200,000 transfer secures now €3,500 less compared to just a week ago.

Against the USD the pound fell also reaching a near 5 month low.  Since the beginning of June GBPUSD rates have dropped over 4% meaning a £200,000 transfer secures nearly $11,000 less.

Even with the above concerns around another Covid wave economic growth is expected to climb hugely across developed nations. Some major economies, including China, South Korea and the US, have already recovered to their pre-pandemic size. But others, including Mexico, Saudi Arabia and South Africa, are not expected to recover until 2023–24, according to the Organisation for Economic Co-operation and Development (OECD.) So much so that inflation is now the worry for most which in turn has been one of the main driving factors for currency markets.  Inflation is traditionally managed by central banks by changing interest rates, so with inflation climbing the likelihood of an internet rate hike increase, which is in turn pushing up demand for the currency in questions as investors seek better returns. It is this additional demand which causes the currency in question to normally climb in value.

UK PEOPLE IN WORK SURPASSED PRE-PANDEMIC LEVELS 

Economically in the UK people in work surpassed pre-pandemic levels in the three months to June as the economy added 356,000 payroll employees in June. UK consumer prices also climbed and in June showed a 2.5% higher compared to 12 months ago which in turn is the highest rate of inflation since August 2018.

Next on the economic calendar is public sector net borrowing figures which are expected on Wednesday morning. Friday is the big day this week with Retail figures as well as Manufacturing and Service PMI data. These are expected to show a contraction and could well weaken the Pounds value as we end the week as reported by FX street.

EURO AREA INDUSTRIAL PRODUCTION FELL BY 1.0%

Yesterday in Europe it was reported that Euro area industrial production fell by 1.0% in May partly reflecting shortages of key materials and components. Later today European Central Bank (ECB) lending figures are released but Thursday’s ECB interest rate decision and policy update is the big event.  As world banks focus on the balance of economic growth against the risk of inflation in a pandemic environment, central bank policy is being keenly watched and could well be the big mover for the single currencies value this week.

Elsewhere following flooding in western Germany and Belgium in which over 188 people were killed, German interior minister Horst Seehofer said, “No one can seriously doubt that this catastrophe is connected to climate change.” It may be that we see additional commentary from the eurozone around an impact to business from the catastrophe and indeed a changing spending plan thereafter which could in turn impact the euros value.

The European Union (EU) laid out its plans for its carbon-border tax only recently which officially is the world’s first. Importers will have to pay for carbon emissions embedded in products they import into the EU from 2026. The EU says the tax will comply with World Trade Organisation rules however Russia and China where quick to criticise the measures

US RETAIL SALES REBOUNDED BY 0.6% IN JUNE FOLLOWING A FALL OF 1.7% IN MAY

Economically in the US inflation accelerated by more than most expected. In the year to June it climbed to 5.4%, a big part of that was put down to higher energy prices. It was also reported that prices of used cars are up 45.2% from a year earlier, while the cost of car hire is up 87.7%.  US retail sales rebounded by 0.6% in June following a fall of 1.7% in May.

Political commentary around how the Federal Reserve will manage inflation going forward is also having an impact. In response to questioning over higher inflation Federal Reserve chair Jay Powell said, “We really do believe and virtually all forecasters do believe that these things will come down of their own accord as the economy reopens – it would be a mistake to act prematurely.” This however is against some economical commenters elsewhere which forecast inflation to be a growing and continual problem which could will need more central bank involvement to manage going forward.

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