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Next forum date: Monday 29 June 2020
Headlines
- Last week’s news of a new outbreak in Beijing, coupled with rising cases in some parts of the US, saw global stock markets pause for breath
- At 158, the number of new cases identified in China’s capital over the past week is significant in comparison to the scale of the initial outbreak in that city, and yet is around one tenth of the number of new cases recorded in the UK each day
- High-frequency data from restaurant reservation website, OpenTable, suggests that a rising number of cases in US states has failed to weigh on consumer appetite
- This emphasises the importance of public confidence in kickstarting the economy even once restrictions have been lifted, something survey data suggest the UK may be lacking, despite the strong recovery in retail sales in May reported this morning
China is being closely observed, now more so than ever, and not just because it was the source of the COVID-19 pandemic, but because its actions and subsequent recovery are seen by some as a preview for what may be in store elsewhere. That is why last week’s news of a second wave, or ‘ripple’ as some are calling it, in China’s capital, Beijing, saw global stock markets pause for breath.
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But concerns that the latest outbreak (combined with rising cases in some parts of the US) could thwart efforts to kick-start the global economy were soon allayed by the promise of additional stimulus, supplementing the extraordinary measures already taken by the world’s central banks and governments. Federal Reserve Chair, Jerome Powell, suggested earlier this week that additional fiscal support may be needed in the US. Its COVID-related fiscal response already equates to more than 10% of GDP.
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The new outbreak in Beijing has seen an additional 158 cases, increasing the city’s total by 27% over the past week alone. This has triggered the closure of parts of Beijing, the cancellation of flights, and the suspension of schools and sporting activities. While it is true that life had been getting back to ‘normal’ in China, the country still had some of the strictest COVID-19 related measures in place, a consequence of having reinstated some restrictions in early May following fears of a second wave back then. For now, offices, government departments and factories in Beijing remain open, suggesting that China’s policymakers are keen to limit the economic impact of this latest outbreak.
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But as we set out in our latest Global Economic and Markets Outlook[1], kickstarting the economy is about much more than government policy alone, with other factors such as fear also influencing behaviour. To the extent that fear is fuelled by the human toll of COVID-19, those countries that have suffered higher mortality rates may well recover less quickly. In this context, China has considerably more wriggle room.
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Reassuringly for the US economy, high-frequency data from OpenTable suggest that the resurgence of infections in some US states has not weighed on consumer appetite to date. Indeed, according to the reservations website, the number of vacant seats in restaurants has continued to ebb, even in those states most affected by rising cases in recent weeks, as shown in the chart below.
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This emphasises the importance of public confidence in kickstarting the economy once restrictions have been lifted, something survey data suggest the UK may be lacking. Indeed, according to a YouGov poll, 50% of shoppers remain “uncomfortable” with the idea of visiting clothing stores after they reopened for the first time in months earlier this week. Admittedly, that is at odds with anecdotes from Fathom staff about queues snaking around their local John Lewis store, and with today’s retail sales data, which revealed a 12% increase in spending in the month of May, with newly reopened household goods stores enjoying a flurry of DIY shoppers.
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There were also signs of life in the US jobs market, with continuing claims down 62,000 in the first week of June. Although only a small dent in the total COVID-related joblessness, as more states relax restrictions in coming weeks the recovery rate should gain momentum. If the average drop in claims over the past two weeks is sustained, all lost jobs would be recovered within a year. Take the average of the last four weeks, and that time shrinks to just 17 weeks. This chimes with our central scenario of a V-shaped recovery, in which economic output is restored to pre-COVID-19 levels by the middle of 2021.
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[1] If you are an existing client who would like to discuss any of these issues in more detail, please get in touch with your usual Fathom contact. If you are not currently a client but would like to find out more about our services, or ask about the possibility of a presentation tailored to your business, please get in touch with leara.gabay@fathom-consulting.com.
