Ravenscroft Group | Richard Allen
12 Apr 21

Weekly update - Under starters orders

This week’s update comes from Richard Allen who is in our discretionary management team in Peterborough.

Despite the weekend’s weather it really does feel like Spring is finally in the air and life is getting much warmer. The success of the vaccination drive in the US and UK is proving to be a real gamechanger with almost all of those at risk of fatal infection now protected. In the UK three adults in every five have now been vaccinated and at long last this week will see England move to Step 2 of the roadmap out of lockdown. The opening up of non-essential retail and outside hospitality should provide a strong boost to the UK economy, which will be further enhanced when full social distancing measures eventually end in June. All of this is in marked contrast to large parts of continental Europe where the shutters have been firmly pulled down.

We have written previously about the high level of pent-up consumer demand which exists in consumer led economies such as the US and UK and the record level of household savings. The week ahead will start to provide an indication of how consumers are beginning to respond to the lifting of restrictions. In the US retail sales data is being released towards the end of the week which will give a snapshot of activity for March and how “Uncle Sam’s” stimulus payments are being spent. Realtime mobility data has suggested that footfall at retail and leisure locations is now at its highest level since the pandemic began. So the stage may well be set for a strong rebound in sales which would highlight to financial markets just how strong the US economy is performing.

Some consumer confidence surveys have suggested that in the UK consumers may be slightly more cautious in their initial approach to spending with shoppers under “starters orders” until lockdown restrictions are lifted in full. Mixed messages from the UK government over when international travel can resume appears to have slightly dented confidence and this was reflected in the underperformance of the share prices of tourism related companies. Even so on both sides of the Atlantic demand for “big ticket” items appears strong. Last week’s financial results from cruise operator Carnival provided evidence to this view with reservations for 2021/22 now exceeding those for the pre-pandemic period in 2018/19.

Financial markets enjoyed strong gains last week with US equity indices hitting record highs. The technology sector in particular enjoyed a strong rebound as the rotation into more economically sensitive companies took a breather. Overall investor sentiment has been buoyed by encouraging service sector activity in the US and the latest minutes from the US Federal Reserve. The key takeaway from the minutes was that ultra-accommodating monetary policy would remain in place until employment and inflation targets have been hit. Federal Reserve Chairman Jerome Powell commented that he still believes that the recovery in the US employment market is “too uneven” and that the international vaccine rollout is too slow. In a separate development, investors were remarkably sanguine in their reaction to the news that the Biden administration is pushing ahead with plans for higher corporate tax rates. Over time this may act as a headwind for corporate earnings but perhaps this is a story for another day.

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