The Corona Economy is Unpredictable

The Corona Economy is Unpredictable

Whatever you think you know about markets, the pandemic is not a predictable Global event, it is an uneven and erratic chain of events that have more to do with Governments and fear then reality.

Some sectors are doing well, lots of money is being printed and this is a time for extreme caution and deep thought before investing.

It is not all bad or all good, it is simply different.

In Germany

New orders for German manufacturing companies surged by 27.9 percent in June, official data showed Thursday, as a rebound which began in May accelerated following a deep slump sparked by the coronavirus pandemic.

Germany’s economy ministry said the upturn in orders “took a major step forward in June” and have reached 90.7 percent of the pre-pandemic level in the fourth quarter of 2019.

However, it warned that any further recovery for the export powerhouse “will be slower” because foreign orders are lagging domestic demand.

Domestic new orders showed a surge of 35.3 percent In June, while those from abroad reached 22.0 percent.

Demand from within the European Union was up 22.3 percent, only slightly bettering the 21.7 percent jump from countries outside the bloc.

Capital goods — or items used by companies to make other products — led the charge, leaping 45.7 percent from a month ago.

Consumer goods meanwhile showed a lacklustre rise of only 1.1 percent.

Germany has withstood the coronavirus shock better than many of its neighbours so far.

Stable infection rates saw it reopen factories, shops and restaurants from early May, allowing economic activity to pick up again.

Germany has also been able to avoid mass layoffs thanks to subsidised shorter-hours schemes, allowing unemployment to hold steady at 6.4 percent in July, the same rate as June.

Chancellor Angela Merkel’s government has also rolled out rescue packages worth over a trillion euros to shield companies and employees, helping the likes of Lufthansa and TUI travel stay afloat.

But Europe’s top exporter is highly vulnerable to virus setbacks in other countries that could lead to renewed shutdowns that once again disrupt supply chains and suppress demand.

In England

Britain’s economic downturn fuelled by the coronavirus pandemic will be less severe than thought — but the nation’s surge in unemployment will delay the recovery, the Bank of England forecast Thursday.

The pound rallied on the update, which included news that the BoE had voted to keep its main interest rate at a record-low 0.1 percent.

The BoE added that its huge cash stimulus programme used to prop up the British economy before and during the coronavirus pandemic would remain at £745 billion ($967 billion, 813 billion euros).

The amount includes £300 billion added to its so-called quantitative easing programme since March when COVID-19 forced the UK into lockdown.

Britain’s economy was expected to contract by 9.5 percent this year, the BoE said Thursday, altering its prior guidance of a 14 percent contraction.

“Nonetheless, the recovery in demand takes time as health concerns drag on activity,” the BoE said in minutes of its latest regular meeting that took place Tuesday.

“GDP is not projected to exceed its level in 2019 Q4 until the end of 2021, in part reflecting persistently weaker supply capacity,” it added.

The BoE estimated that UK gross domestic product would rebound in 2021 by nine percent, but down on an earlier forecast for output growth of 15 percent.

The Bank added that it “does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the (bank’s) two percent inflation target sustainably.”

Britain’s official annual inflation rate stands at 0.6 percent, while unemployment is at 3.9 percent.

– ‘Unemployment at 7.5%’ –

The BoE on Thursday forecast that Britain’s unemployment rate would shoot higher to around 7.5 percent by the end of the year.

“Employment appears to have fallen since the COVID-19 outbreak, although this has been very significantly mitigated by the extensive take-up of support from temporary government schemes,” the minutes said.

“Surveys indicate that many workers have already returned to work from furlough, but considerable uncertainty remains about the prospects for employment after those support schemes unwind.”

UK companies, from major retailers to airlines, are axing thousands of jobs despite government efforts to safeguard employment during the pandemic.

The state has been paying up to 80 percent of wages for almost ten million workers under its furlough scheme, which finance minister Rishi Sunak plans to end in October.

Replacing the scheme is a stimulus package worth £30 billion, including bonuses for companies retaining furloughed staff and offering apprenticeships, amid fears of mass youth unemployment resulting from the virus fallout.

Recent official data showed Britain’s economy tanked in the first quarter by 2.2 percent — the biggest quarterly contraction for more than 40 years.

Economists expect there to have been a far sharper slump in the second quarter, or three months to June, placing Britain in a technical recession.

Confirmation is due Wednesday when the first official estimate on second-quarter output is published.

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S. Jack Heffernan Ph.D. Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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