Friday 12 June 2020

UK GDP 20.45% down in April - FTSE up 1%

The headline is a great example of cognitive dissonance.

Market commentators will say the drop is already priced in. Yet the market is down just shy of 20%  from its peak of 7674 on 7th Jan 2020.

How can we have removed 20% of the economy and the market still be happy - it is not priced in at all.

The next argument the commentators will use is that this is not only priced in, but the markets are already looking to the future bounce back. I say this is very unlikey to be fast bounceback. In the medium term I am sure there will be new restaurants and coffee shops, in the short term a huge amount are dead and only exist now because of the wasted furlough support (wasted as in it is being used to support companies that can't make it, not as in I want people jobless and poor!).

IAG and EZY - two major listed airlines are indeed down 50% and of course the market is also made up of companies doing well in the pandemic. But 50% down for airlines is optimistic, I am very bearish on their prognosis - flying will be very limited for a long while to come and appetitite for it will take years to come back. Indeed, if capacity is not used in the next quarter they will be a fraction of the size they were pre-crisis.

We have the Government spending money, the Bank of England pouring liquidity in the background (which finds its way to assets, like shares), a closed economy and not quite sorted pandemic.

It will be very rocky, but I stick by what I have been saying for a couple of weeks, the end of this month is key. Quarterly rents, these GDP numbers and their quarterly companions and the move to economic re-opening as much as it will be possible for a few months will all be in place. At that point we could easily see the big market correction - or, as ever, market irrationality and acceleration. My hunch is the former.


Anonymous said...

I must be mad. It's looking good from where I am.

There is a shedload of cash floating around the world looking for a home. Some will get spaffed (is that a word?), some will get wasted on vanity projects (tidal?) but most will go into interesting looking projects in the developing world. Funnelled through ... London.

Now it may be a virtual London via zoom but the action is here.

DJK said...

People in high income households are working from home, not eating out and not going on foreign holidays. So, plenty of income but not much to spend it on. That money has to go somewhere.

Nick Drew said...

the action is here

- well you know we agree with that

wasted on vanity projects (tidal?)

- yup, that would be a waste alright (spaffed is the right word): but I'm not sure even the Welsh government is still up for that scam

E-K said...

We splashed out on a mini snooker table and a cocktail shaker.

Raedwald said...

A x20 stereoscopic microscope here and a $68 computer programme. I've decided to catalogue the ants living on the Schloss Radders acres and do dendro on the (I think) 400 year old timbers in the roof I replaced last year.

Work is soo over.

Thud said...

I have offer in on a farm with main house to renovate and outbuildings to repurpose (business and residential) so plenty of potential spend here.

E-K said...

Raedwald - I bought a pair of 25x70 binos to look at the moon and it's grrrreat !

Citizen Khan put up hoarding to "... protect statues from far right extremists" apparently.

So there's money in hoarding to be made.

andrew said...

"UK GDP 20.45% down in April - FTSE up 1%"

The FTSE is an internationally based index - over half the businesses there make money outside the UK.

(same as (1) really). The FTSE is not representative of the UK's businesses. (all figures approx) - shell has a market cap of ~200bn.
The FTSE market cap is ~2000bn.
It has most of its employees and assets outside the UK.

So, both facts can be seen as possibly reasonable.

My takeaway is to avoid any retailer who sells things that are discretionary spending to 'the 99%' (i.e. anything that is not food and not LVMH) as things are worse than you think out on the streets.

Roger Fox said...

The situation with falling GDP today worries all countries. The UK is not the only country with problems in the economic sector.