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17 April 2020

Easing Restrictions in the US Provides a Test Case for the World

James Rowbury, Investment Research Coordinator

Since the end of the Easter weekend, countries around the world have been assessing the economic damage caused by the Covid-19 pandemic and looking into the potential loosening of lockdown measures to improve their economies. The initial three-week period since the start of lockdown on March 23rd in the UK has now ended, however, with the peak of the outbreak still predicted to come, the lockdown has been further extended until early May at least. So far, there have been over 103,000 infections and over 13,700 deaths recorded in the UK.

The economic impact of the lockdown is the largest since records began. Accounting firm KPMG and industry body British Retail Consortium released data showing that retail sales in the UK in March were 4.3% lower compared to the same time last year – the steepest drop since 1995. While the first three weeks of March revealed a 12% rise, sales have fallen 27% since the start of the lockdown, as the closure of non-essential shops and businesses far outweighed the 19% growth in online non-food sales.

Similarly, the Office for Budget Responsibility predicted that the second-quarter output of the UK economy could drop by up to 35% if lockdown measures remained in place for three months, painting a bleak picture for the immediate future.

In light of the recent news, the Cboe UK 100 has fallen by 3.82% over the past week, which was also weighed by the falls in stocks of large-cap oil companies BT and Royal Dutch Shell, in light of the oil crisis between Russia and Saudi Arabia.

Markets worldwide have been volatile, as the OPEC announced the end of the oil price war between Russia and Saudi Arabia. The OPEC committed to cut its production of oil by 9.7m barrels per day – almost 10% of the daily global demand. However, this failed to boost sentiment in the markets, as the International Energy Agency predicted that the demand for oil would fall by 9.3m barrels a day, even in the scenario of ended lockdowns and bans on travel.

Additionally, there has been criticisim that the cuts in output will struggle to realistically reach the headlined figures. As a result, oil prices remain low and stocks of oil companies around the globe are suffering.

US President Donald Trump said that he would be working towards loosening lockdown measures in some states, as 24% of state counties have not reported any Covid-19 infection cases and data shows that the peak of new cases has now passed.

We look closely at US infection rates now, as any resurgence of the virus may impact the easing of restrictions elsewhere in the world. The measures came soon after Mr Trump suspended funding to the World Health Organization with claims that it was mismanaging information relating to Covid-19 cases and did not communicate the severity of the outbreak.

Global investor sentiment was tested by the announcements, as the US S&P 500 fell by 0.21%, Hong Kong’s Hang Seng dropped 1.04% and Japan’s Nikkei 225 lost 0.91% in the last week.
 
Easing Restrictions in the US Provides a Test Case for the World
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