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Consumers splash the cash ahead of holidays

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This is the last Coronavirus Business Update of 2020. We will return on January 4. We wish you a healthy and happy seasonal holiday and look forward to continuing keeping you updated in the new year.

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Signs of renewed economic activity in UK and US even as infections rise

Consumers rushed out to splash the cash in shops, pubs and restaurants after November’s coronavirus lockdown ended in England, resulting in the fastest rate of consumer spending growth this year, according to the latest data tracking bank transactions.

Figures from Fable Data, based on card transactions and bank payments, show that consumer expenditure in the UK was up 9.4 per cent in the week ending December 13 compared with the same period a year ago.

Line chart of annual consumer spending change (%) showing a sharp rise in UK consumer spending after England’s November lockdown ended

Even as coronavirus infections intensified across Europe and the US, there were broader signs of renewed economic activity towards the end of the year in a number of countries.

Sales of British Christmas trees were up 15 per cent, reflecting the mixture of a traumatic mink cull in Denmark that affected supply chains and deterred wholesale buyers, disruption at ports ahead of the end the Brexit transition, and a campaign to buy local.

FedEx has revealed the scale of the online shopping boom in the run-up to the US holiday season peak, reporting its highest quarterly sales on record after the logistics group handled millions of additional packages and implemented surcharges on shipments.

Elsewhere, Gucci will launch two online stores in China alongside ecommerce group Alibaba, as the high-end brand counts on a post-coronavirus boom in luxury goods spending in the country to offset sluggish sales in the west.

But the academic Adam Tooze warns that while scientists may have provided a miraculous fix for Covid-19, history shows that any path to recovery will be long.

Reflecting the spirit of seasonal goodwill, he says we should “forgo austerity measures in favour of generous crisis relief for those most in need, and long-term investment in the transition to green energy”.

For the latest coronavirus news visit our live blog

Markets

Absolute Strategy Research, an investment consultancy, found in its latest quarterly survey of 200 asset allocators, chief investment officers, investment strategists and economists, that 71 per cent thought global equities would be higher in a year’s time. This created the “risk of groupthink”, it warned.

Line chart of IPO volumes by deal value ($bn) showing that London lags leading exchanges for new listings

While the City of London remains a global superpower in a number of areas of finance, its stock market is struggling with weak returns and a lack of big tech stocks. Lacking the megacap tech stocks that dominate in the US and China, the FTSE 100 is now trading at one of the widest price-to-earnings discounts to the S&P 500 for 15 years. This is part of our Future of the City series.

The Federal Reserve’s emergency lending programme for small and midsize businesses has recorded a jump in demand with just weeks to go before it is shut down over the objections of the US central bank. For the week ending Wednesday, the Fed lent out an additional $2.7bn through the Main Street Lending Program, created to help struggling businesses that are not big enough to access the bond market.

Business

Restaurant owners have highlighted the crippling effects of a second lockdown within six months in England as well as tough restrictions still in place across the UK. The Restaurant Group, which owns chains including Wagamama and Frankie & Benny’s, reported higher cash burn during England’s second lockdown. Fulham Shore, which owns Franco Manca and The Real Greek, posted first-half revenue down 45 per cent to £19.9m.

The US Food and Drug Administration will grant emergency approval to the Moderna coronavirus vaccine in the coming days, making it the first country to have authorised two inoculations against the virus. The EU has requested a further 80m doses from the company, doubling the size of its orders.

Barclays retail bank chairman Ian Cheshire is stepping down after four years helping to establish and lead the UK unit of the lender, which is set for a major overhaul in the coming years after its profits collapsed amid coronavirus. Sir Ian, 61, will be replaced by Crawford Gillies at the end of the year and will leave the board in May.

Global economy

Vendors have been offering coronavirus vaccines for sale on hidden parts of the internet days after the first Covid-19 shot was approved this month, as criminals seek to profit from global demand for inoculations. Experts said that many of the vaccines for sale on the dark web were either fake or would never be shipped. 

A political flare-up over the Federal Reserve’s pandemic crisis lending programmes has emerged as a late stumbling block to a $900bn fiscal stimulus package as US congressional leaders rushed to complete the deal. Pat Toomey, a Republican senator, sought to insert a provision in the legislation that would prevent the Fed from reviving several emergency credit facilities that are due to expire at the end of the year.

Line chart of monthly UK property transactions, above £40,000 (thousands) showing that the UK housing market saw a strong 'V'-shaped recovery after lockdown

The feverish demand for UK property has stood out in the gloom of the wider economy. After lockdown brought the homebuying process to a near standstill in March, it roared back to life from May, fuelled by the desire for bigger, more comfortable properties triggered by the shift to working from home and the nine-month stamp duty holiday announced in July.

The essentials

Follow our coronavirus vaccine tracker, updated every week, as well as our global economic impact tracker and our coronavirus tracker on the spread of infection around the world.

Final thought

John le Carré, the spy fiction master
John le Carré, the spy fiction master ©  Greg Funnell/Camera Press | John le Carré

Simon Schama argues that John le Carré, the spy fiction master, ventured well beyond the shadows of espionage to become one of the most perceptive and enduring writers of his age. His writing was “often surprisingly tender amid the carnage, exactingly watchful, brimming with sensuous plenitude, even on rain-sodden city streets, and with the bloody beat of life pounding away on every page”.

We would really like to hear from you. Please send your reactions or suggestions to covid@ft.com. Thanks



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Copper hits record high with demand expected to rise sharply

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Copper prices hit a record high on Friday in the latest leg of a broad rally across commodity markets sparked by the reopening of major economies and booming demand for minerals needed for the green energy transition.

Copper, used in everything from electric vehicles to washing machines, rose as much as 1.2 per cent to $10,232 a tonne, surpassing its previous peak set in 2011 at the height of a previous commodities boom.

The price has more than doubled from its pandemic lows in March last year due to voracious demand from China, the biggest consumer of the metal, and also investors looking to bet on a big uptick in the global economy and protect their portfolios against potential for rising inflation.

Government stimulus packages and the shift towards electrification to meet the goals of the Paris agreement on climate change are expected to fuel further demand for the metal, which analysts and industry executives believe could hit $15,000 a tonne by 2025.

“Capacity utilisation rates of our customers are the highest in a decade and that’s before stimulus money both in Europe and the US has started to flow,” said Kostas Bintas, head of copper trading at Trafigura, one of the world’s biggest independent commodity traders. “That will be significant.”

The US and Europe were becoming significant factors in the consumption of copper for the first time in decades, he added. “Before, it’s effectively been a China-only story. That is changing fast.”

Concerns about the long-term supply of copper due to lack of investment by large miners has also pushed up prices. There are only a few large projects in a development, while most of the world’s easily produced copper has already been mined.

“The current pipeline of projects likely to start producing in the next few years represents only 2.3 per cent of forecast mine supply,” said Daniel Haynes, analyst at banking group ANZ. “This is well down on previous cycles, including 2010-13 when it reached 12 per cent.”

The upward march of other raw materials is showing no signs of abating. Steelmaking ingredient iron ore traded above $200 a tonne for the first time as China returned to work after the Labour Day holidays in early May. 

In spite of production cuts in Tangshan and Handan, two key steelmaking cities in China, analysts expect output to remain solid over the next couple of quarters. 

“Recent production cuts in Tangshan have boosted demand for higher-quality ore and prompted mills to build iron ore inventories as their margins are on the rise with steel supply being restricted,” said Erik Hedborg, a principal analyst at CRU Group.

“Iron ore producers are enjoying exceptionally high margins as around two-thirds of seaborne supply only require prices of $50 a tonne to break even.”

Elsewhere, tin on Thursday rose above $30,000 a tonne for the first time in a decade before easing. Tin is used to make solder — the substance that binds circuit boards and wiring — and is benefiting from strong demand from the electronics industry, which has been lifted by growing numbers of stay-at-home workers.

US wood prices continued to race higher ahead of the peak in the US homebuilding season in the summer with lumber futures rising to a record high above $1,600 per 1,000 board feet length, up from $330 this time last year.

Agricultural commodities also continued to rally as a result of a particularly dry season in Brazil, concerns about drought in the US and Chinese demand. Strong increases in food prices have started to affect global consumers. Corn rose to a more than eight-year high of $7.68 this week, while coffee has risen almost 10 per cent since the start of month, hitting a four-year high of $1.54 a pound this week.



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Wall Street stocks waver as investors await US jobs data

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Wall Street stock markets wavered, with tech losses dragging down some indices, but remained close to record highs ahead of US jobs data on Friday that could pile pressure on the Federal Reserve to rethink its ultra-supportive monetary policies.

The S&P 500 was up 0.2 per cent in the afternoon in New York, hovering slightly below its all-time high achieved late last month. The peak was reached following a long rally supported by the Fed and other central banks unleashing trillions of dollars into financial markets in pandemic emergency spending programmes.

The technology-heavy Nasdaq Composite, however, which is stacked with growth companies sensitive to changing interest rate expectations, was down 0.5 per cent by the afternoon in New York, the fifth straight losing session for the index.

The divergence of the two indices followed patterns from earlier this year, when investors sold out of growth companies over fears of rising rates and poured into more cyclical plays. That trade has been more muted recently but could be coming back, said Nick Frelinghuysen, a portfolio manager at Chilton Trust.

“It’s been a bit more ambiguous . . . in terms of what regime is leading this market higher, is it quality and growth or is it value and cyclicals?” Frelinghuysen said. “We’re in a little bit of a wait-and-see mode right now.”

The 10-year Treasury yield, which rose rapidly earlier this year amid inflation fears, declined 0.05 percentage points to 1.56 per cent on Thursday.

In Europe, the Stoxx 600 closed down 0.2 per cent, hovering just below its record high reached in mid-April.

With the US economy close to recovering losses incurred during coronavirus shutdowns, economists expect the US government to report on Friday that the nation’s employers created 1m new jobs in April. Investors will scrutinise the non-farm payrolls report for clues about possible next moves by the Fed, which has said it will continue with its $120bn a month of bond purchases until the labour market recovers.

Up to 1.5m jobs would “not be enough for the Fed to shift”, analysts at Standard Chartered said. “Between 1.5m and 2m, there is likely to be uncertainty on Fed perceptions.”

Central bankers worldwide had a strong “communications challenge” around the eventual withdrawal of emergency monetary support measures, said Roger Lee, head of UK equity strategy at Investec.

“If it is orderly, then you can expect a gentle continuation of this year’s stock market rotation” from lockdown beneficiaries such as technology shares into economically sensitive businesses such as oil producers and banks, Lee said. “If it is disorderly, it will be a case of ‘sell what you can’.”

On Thursday the Bank of England upgraded its growth forecasts for the UK economy but stopped short of following Canada in scaling back its asset purchases.

The BoE maintained the size of its quantitative easing programme at £895bn, while also keeping its main interest rate on hold at a record low of 0.1 per cent. The British central bank added that while its asset purchases “could now be slowed somewhat” after it became the dominant buyer of UK government debt last year, “this operational decision should not be interpreted as a change in the stance of monetary policy”.

Sterling slipped 0.1 per cent against the dollar to $1.389.

The dollar, as measured against a basket of trading partners’ currencies, weakened 0.4 per cent. The euro gained 0.4 per cent to $1.206.

Brent crude fell 1.1 per cent to $68.17 a barrel.



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Gensler raises concern about market influence of Citadel Securities

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Gary Gensler, new chair of the Securities and Exchange Commission, has expressed concern about the prominent role Citadel Securities and other big trading firms are playing in US equity markets, warning that “healthy competition” could be at risk.

In testimony released ahead of his appearance before the House financial services committee on Thursday, Gensler said he had directed his staff to look into whether policies were needed to deal with the small number of market makers that are taking a growing share of retail trading volume.

“One firm, Citadel Securities, has publicly stated that it executes about 47 per cent of all retail volume. In January, two firms executed more volume than all but one exchange, Nasdaq,” Gensler said.

“History and economics tell us that when markets are concentrated, those firms with the greatest market share tend to have the ability to profit from that concentration,” he said. “Market concentration can also lead to fragility, deter healthy competition, and limit innovation.”

Gensler is scheduled to appear at the third hearing into the explosive trading in GameStop and other so-called meme stocks in January.

Trading volumes in the US surged that month as retail investors flocked into markets, prompting brokers such as Robinhood to introduce trading restrictions that angered investors and drew the attention of lawmakers.

The market activity galvanised policymakers in Washington and investors. Lawmakers have focused much of their attention on “payment for order flow”, in which brokers such as Robinhood are paid to route orders to market makers like Citadel Securities and Virtu.

That practice has been a boon for brokers. It generated nearly $1bn for Robinhood, Charles Schwab and ETrade in the first quarter, according to Piper Sandler.

Gensler noted that other countries, including the UK and Canada, do not allow payment for order flow.

“Higher volumes of trades generate more payments for order flow,” he said. “This brings to mind a number of questions: do broker-dealers have inherent conflicts of interest? If so, are customers getting best execution in the context of that conflict?”

Gensler also said he had directed his staff to consider recommendations for greater disclosure on total return swaps, the derivatives used by the family office Archegos. The vehicle, run by the trader Bill Hwang, collapsed in March after several concentrated bets moved against the group, and banks have sustained more than $10bn of losses as a result.

Market watchdogs have expressed concerns that regulators had little or no view of the huge trades being made by Archegos.

“Whenever there are major market events, it’s a good idea to consider what risks they might have placed on the entire financial system, even when the system holds,” Gensler said.

“Issues of concentration, whether among market makers or brokers at the clearinghouse, may increase potential system-wide risks, should any single incumbent with significant size or market share fail.”



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