May Market Overview

UK




Having met the first target for vaccinating all those in the most vulnerable age groups ahead of schedule, the UK pressed ahead with the initial stage of easing the lockdown restrictions. This first stage saw the reopening of non-essential shops including hairdressers, pub gardens and gyms.


The UK has reportedly secured an additional 60 million doses of the Pfizer vaccine for the booster programme aiming to come in later this year. According to Public Health England, the programme is being designed with new variants in mind, with annual shots the most likely way forward from here. This does rely on the public willingness to take vaccines though, and new data showing increasing unease about the AstraZeneca shot in particular will be of concern. Nearly a quarter of UK residents now believe the vaccine to be the cause of rare blood clots and the government will now provide those under the age of 30 with the choice of taking one of the other approved vaccines.


There continues to be a raft of positive economic data out of the UK, including further reductions in unemployment, which now sits at 4.9%, positive GDP data. Also in the news are house prices which have risen at the fastest pace in 17 years. Year-on-year gains came in at 7.1% against the forecast 5%, with month-on-month data showing a 2.1% gain against 0.5% forecast. This is likely due to the extension of the stamp duty holiday from chancellor Rishi Sunak, whereby buyers purchasing property up to a value of £500,000 remain exempt from paying any stamp duty.


It’s been a tough few weeks for prime minister Boris Johnson. He has become embroiled in scandals regarding lobbying and finances, with reports from first the Daily Mail and subsequently the BBC suggesting that Johnson improperly borrowed funds from the Conservative Party to renovate his Downing Street flat. The Electoral Commission announced a probe into the funding, which they say may have broken the law as the source of the money was not disclosed to parliament as required. The consequences, if found guilty, are as yet unclear.

Eurozone/EU


In German politics Armin Laschet, leader of Germany's Christian Democrats (CDU), won the backing of senior party members at an internal meeting to run as the conservative candidate to succeed Angela Merkel at a September federal election. This is key for continuity as the leading party looks to consolidate around a single candidate ahead of the election.


European regulators have released a statement backing the Johnson & Johnson vaccine as safe to use despite the risks associated with rare blood clots, following a review. This is the exact same line taken with the AstraZeneca jab previously. As a result of EU reviews and bans on various vaccines the bloc looks set to miss its target of vaccinating 70% of the population by the summer by at least several months, throwing further doubt on the prospects for a swift economic recovery from the crisis.


Specifically on AstraZeneca, the European Union has officially launched legal action against the company for failure to meet its contractual supply obligations to the bloc. The action is being brought on by the European Commission on behalf of itself and the 27 EU member states. It is likely AstraZeneca will deliver no greater than a third of the 300 million vaccine doses promised under the agreement by the end of June.


US


A resurgent U.S. job market is creating more opportunities at a faster clip than many economists and employers expected, with non-farm payrolls surging 916,000 last month, well above the consensus of a 660,000-job gain. A measure of service-industry activity released earlier this week saw the fastest growth on record in March.


President Biden announced plans to hike taxes to pay for infrastructure and other plans, which spooked markets. His administration aims to nearly double the current rate of capital gains tax on people earning more than $1 million annually, to 39.6%. Along with other measures this could see federal rates for investors reach as high as 43.4%.


U.S.-China relations: The U.S. added seven Chinese supercomputing firms and institutions to a list of entities conducting activities contrary to U.S. interests. But the action doesn't fully sever the bodies from American technology, unlike actions which stopped Huawei buying chips from Taiwan's TSMC. And a Senate committee is crafting a bill calling on the U.S. to adopt a policy of "strategic competition" with China.


Asia


Covid-19 chaos in India is accelerating, with the country reporting a million cases in three days. Streets are mostly empty in the political capital of Delhi, yet Prime Minister Narendra Modi is shunning a nationwide lockdown. Bloomberg’s Virus Tracker shows that only around 11 out of 100 people in India have received a vaccine dose. Only two months ago, India was revelling in its success of reining in the spread of the virus. At the end of April, India was reporting more than 350,000 infections and 3,500 deaths a day.


China, the world's second-largest economy, grew by 18.3% in the first quarter compared with a 6.8% fall in the same period last year. Chinese retail sales soared 34.2% in March. The housing market is also showing signs of strength with home prices growing at the fastest pace in seven months in March.


Concerns about price pressures were apparent in China, where March data showed the fastest factory inflation since 2018. The producer price index rose 4.4% in March from a year earlier after gaining 1.7% in February, higher than the 3.6% median estimate in a Bloomberg survey of economists. The consumer price index increased 0.4% in March from a year earlier after falling for two straight months. Rising prices in China threaten a global inflation further and add more turmoil to financial markets.


In April, China kept its benchmark lending rate unchanged for the 12th month in a row, but Beijing, is using other policies to dampen down the risk of overheating in its unbalanced, industry-heavy recovery. Total social financing, the country’s main gauge of credit growth which measures lending across the domestic financial system, rose by 12 per cent year-on-year in March, its slowest pace since April last year.


In corporate China, the government is readying a fine of at least 10 billion yuan ($1.6 billion) on Tencent as part of its antitrust crackdown. That's less than the $2.8 billion levied on Alibaba. China told 13 of the country’s biggest tech companies to “rectify prominent problems” on their platforms. Tencent, ByteDance and the fintech affiliates of Baidu, JD.com, Meituan and Didi were among the group summoned to a meeting with officials from the People’s Bank of China and other banking, securities and foreign exchange regulators.


In Japan, the jobless rate stood at 2.9% in February, unchanged from January, the Statistics Bureau said in April. The unemployment rate has been on the rise, from an average of 2.4% in 2019 to 2.8% in 2020, though the increase has been cushioned by the government's paycheck protection program, under which businesses that keep workers on the payroll receive subsidies. The program will be trimmed down from May to cover up to 90% of leave benefits, instead of the current 100%. Japanese’s deflation continued for an eighth month in March but eased to 0.2% from February's 0.4%. CPI is estimated to be about 0% in April on higher energy costs.



Please note: The opinions expressed in this update are those of A&J Wealth Management Limited only, as at the 4th May 2021 and are subject to change. The update is for information purposes only.

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