The Chancellor has upgraded the recently announced Jobs Support Scheme (JSS) to a more generous package, going some way to addressing its shortcomings. Now, people returning to work from furlough on a part-time basis will have to work 20% of their normal hours to be eligible for support, compared to 33% originally. The Government will top up 54% of pay lost (up from 22% previously), while the employer contribution has effectively been cut to 4% from 22%.
Along with the new support for wages, support for the self-employed has also been announced, with a doubling of grants from 20% to 40% of profits and increasing the maximum grant to nearly £4,000. As well, local authorities in Tier 2 areas in England are set to receive cash grants to help businesses stay afloat worth up to £2,100 per month for every business, as long as restrictions apply.
This of course doesn’t solve the issue of businesses unable to offer workers even 20% of normal hours, but the risk of mass job losses in affected sectors has been reduced. Given it seems we will be living with increased restrictions for months not weeks, we would not be surprised to see further measures announced by the Chancellor in the near future.
Economic data in the form of ‘flash’ PMI surveys indicated a deterioration in economic activity through October, implying a weaker end to the third quarter and a slow start to the fourth quarter. Europe is mirroring the UK’s increasing constraints on activity and saw service sector sentiment fall commensurately, though manufacturing continued to prove resilient.
Eurozone consumer confidence also fell during the month, and with the labour market still very weak relative to pre-crisis levels and continued uncertainty regarding the path of the virus, the road ahead for consumers may be bumpy. The UK also saw a fall in these indices but both services and manufacturing remain in ‘expansionary’ territory, albeit less positively relative to previous months.
In markets, we saw a generally stronger Pound during the week as new flow around Brexit negotiations improved, with rises of 0.2% – 0.8% seen against major currencies, including the US Dollar. This saw the outperformance of particularly domestically focused UK equities in the shape of the FTSE 250 index, which rose by 1.6%, ahead of most major indices. The FTSE 100 index fell by just less than 1%, hindered by the stronger Pound.
The US S&P 500 was the worst of the major regions in Pound terms with a 1.4% fall. Stocks here are still oscillating around fiscal stimulus package news flow in the lead up to the election, even as virus infection numbers continue to rise in various states. The final presidential debate appeared to do little to alter the trajectory of a race that Democrat candidate Joe Biden still leads, at least according to polls.
In fixed income, notable downwards moves were made in UK government bond markets due to more positive sentiment as outlined above; Gilts fell by more than 2%, with index-linked Gilts dropping by 2.2%.
Looking forward, stock markets are trending lower going into the new week amidst virus uncertainty. With just one week to go until the US Presidential election we unsurprisingly expect volatility in the lead up to and following what could be a controversial polling day, though as we have mentioned before, we would expect fiscal policy from either candidate to provide a further boost to risk assets both domestically and internationally.
Market views by Ollie Stone – Head of Portfolio Management and Fairstone Private Wealth Ltd (26th October 2020)
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