21 Apr 2020
The political ground is shifting among the western democracies: the emphasis is no longer merely on containment and conquest of Covid-19, it’s how and when to unshackle economies and get people back to work again. The political imperative is most immediate for President Trump, now only seven months away from his date with the electorate and the ballot box.
At the time of writing, 22 million Americans have lost their jobs in the past month alone, signing on the dole (the US does not have a UK-style furlough programme); it takes the US unemployment rate to the mid-teens against sub-4% at the end of February, with the expectation of it going higher still. The US economy may shrink by a quarter between March and June, and 5% for 2020 as a whole. We all know that virtually every country is suffering economic stress to a greater or lesser extent; it remains to be seen whether US voters will view it that way when they get to the polling booth, or whether the blame will be squarely heaped on Trump. His Covid-19 press conferences have become morbidly fascinating to watch. However gruesomely entertaining from afar, it’s having a palpable effect on his approval ratings at home: only three weeks ago his stock was rising, 53% of Americans considered him doing a good job, 39% a bad one; fast-forward to this week and 49% think he’s failing and only 45% give him the benefit of the doubt.
The economic news this week has been predictably grim. The Office for Budget Responsibility estimates that were the UK to be locked down for three months, the UK economy could shrink by 35% in the second quarter and by 13% for 2020. The IMF has caught up with independent forecasters in predicting a global economic shrinkage of 3% this year. If that seems manageable under the circumstances, bear in mind that at the depth of the global financial crisis and the ensuing recession, annual global economic growth never contracted by more than 0.5%. What is being predicted here is multiples of that and the longer populations are constrained and suppressed, the longer the recovery will take. China reported that in the first quarter its own economy reduced by 6.8%; it’s a Communist state in the grip of General Secretary Xi and the data is what it is, but there can be little doubt many may suspect that, similar to the number of Chinese Covid-19 deaths being under-reported, the economic growth number is also short of reality.
As governments continue to come to grips with keeping their economies afloat, not only trying to maintain livelihoods and employment, they are also trying to stimulate consumer demand. Japan this week joined Hong Kong and the US in issuing every member of the electorate with a cheque, in this case for 100,000 Yen, (around £750) with an instruction to spend it. It is not the first time Japan has done this; late last century, suffering economic stagnation and enduring deflation, the government adopted a similar tactic. It failed: with falling prices, most people sensibly tucked the cash under the mattress, either to save it for a rainy day, or in the expectation of being able to buy the same goods later at lower prices; either way the trickle-through to the broader economy was negligible. With inflation of 0.4% now, modest but at least positive, perhaps this time will see a different outcome.
Oil markets remain unstable. Despite the petroleum producing nations, particularly OPEC, Saudi and Russia, agreeing finally to reduce output by 9.5m barrels per day as demand falls, it was well short of the 15m barrels President Trump envisaged when acting as broker between President Putin and Mohammed Bin Salman of Saudi Arabia. After a brief revival to $34, Brent Crude oil has drifted off to around $28 again as stocks continue to rise and storage capacity shrinks.
Usually low fuel costs would be a shot-in-the-arm for both industry and consumers; but the price is low precisely because demand has dropped significantly (and supply is still too great) so any benefit is minimised. If the UK is reflective of elsewhere, travel data gives an idea of the problem: in the week leading up to Easter, usually one of the busiest travel weeks of the year, air traffic was down 91% on a year ago, rail down 95% and road vehicle movements down 71%.
After the frenetic activity of the past six weeks, markets have calmed. Calm is on a relative scale---a daily movement either up or down of 2%-3% in an equity index is now viewed as barely worth a mention: only a couple of months it would have been eliciting headlines of “markets soar!” or “markets plunge!” How times change.
The Jupiter Merlin Portfolios are long-term investments; they are certainly not immune from market volatility, but they are expected to be less volatile over time, commensurate with the risk tolerance of each. With liquidity uppermost in our mind, we seek to invest in funds run by experienced managers with a blend of styles but who share our core philosophy of trying to capture good performance in buoyant markets while minimising as far as possible the risk of losses in more challenging conditions. The conditions have indeed been challenging these past few weeks; pleasingly, the Jupiter Merlin Portfolios have held up well in the circumstances.
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Fund specific risks: The NURS Key Investor Information Document, Supplementary Information Document and Scheme Particulars are available from Jupiter on request. The Jupiter Merlin Conservative Portfolio can invest more than 35% of its value in securities issued or guaranteed by an EEA state. The Jupiter Merlin Income, Jupiter Merlin Balanced and Jupiter Merlin Conservative Portfolios’ expenses are charged to capital, which can reduce the potential for capital growth.
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