All I Need Is A Miracle!

All I Need Is A Miracle!                                                                                  22 October 2020

According to Luxhabitat Sotheby’s International Realty, Q3 saw a 158% hike in the sale of Dubai prime villas to 438, with two of them being the most expensive sales in 2020 – over US$ 20 million for a 42.5k sq ft in Dubai Hills and US$ 19 million for one in Emirates Hills. Over 50% of the most expensive properties sold YTD were in Dubai Hills and District One, sub-communities in MBR City. On an annual basis, the firm estimates that both residential rentals and sales have declined on an annual basis by 12% and 9%. On a quarterly basis, the number of transactions – 2.3k apartments and 438 villas – came in 24% higher than Q2, with the cumulative sales value 49.0% higher at just over US$ 2.0 billion; when it comes to sales the top three locations were MBR City (US$ 599 million), Downtown (US$ 327 million) and Palm Jumeirah (US$ 272 million). The Q3 value of transactions jumped 122% to US$ 1.6 billion, as the off-plan market has been hit by a dearth of new releases; the secondary market recorded Q3 prime sales of villas and apartments both rising on the quarter by 230 to 418 and 657 to 1.2k. By the end of last month, the average price for a prime villa was US$ 1.6 million and US$ 490k for an apartment. With villa prices in some locations beginning to rise again – as are rentals – now must be the best time for anyone to buy their own home in Dubai.

In contrast, JLL’s latest UAE Real Estate Market Performance, Dubai’s residential property market will continue to be a buyer’s market on the back of a wider range of incentives being offered, as the addition of new units is expected to further depress prices in the short-term. To attract new business, developers will have to continue to offer a range of incentives such as fee waivers, discounts, rent-to-own, as well as partnerships with banks to attract new investors. In 2018 and 2019, Dubai’s population grew by 7.3% to 3.193 million and by 5.10% to 3.356 million and so far YTD to 18 October by only 1.43% to 3.404 million. So there is no doubt that the population growth is slowing and this will have an obvious negative impact on Dubai’s real estate sector; other factors in play include high unemployment rates (albeit temporary) and subdued investor interest – both locally and globally.

Although no figures were available, it seems that Sobha Realty had a successful Q3, as the year on year number of international investors increased, tapping new markets such as Nigeria and Canada which showed a 20% hike in business. The Dubai-based luxury real estate developer also noted an uptick in investors from the GCC region, India and China.  Although, in line with other developers, Q2 was an almost write-off, Q3 saw a change in direction, as the government prioritised real estate development – considering it a ‘vital sector’ – and enabled work to continue uninterrupted. Work started in 2014 on Sobha Hartland, an eight million, ten-year sq ft luxury freehold master development, which is located in MBR City and will have 30% of the total land dedicated to green cover and open spaces.

To the surprise of many, the latest Mercer survey, covering five hundred UAE companies, revealed that the actual annual salary increase in the country was 3.8% across the general market, with 19.4% freezing salary levels this year. Other more plausible findings were that one hundred and fifty companies were planning to cut payroll numbers by 10% this year and that around 17% of companies have delayed their 2020 increases due to the Covid-19 pandemic, typically for six months. Two interesting facts were that 55% of companies surveyed expected to continue with flexible working arrangements once the pandemic is over and that 25% reported an increase in productivity as a result of employees working from home. It is hard to visualise that it expects salaries to increase by an average 4.0% in 2021, especially since Dubai’s economy, with 106k companies, is built on trade, travel and tourism where there will be much lower numbers earning much lower remuneration packages.

By paying, its last outstanding US$ 1.5 billion bond, issued a decade ago, DEWA is now debt free. This is no mean feat, considering that the authority  has transmission and distribution infrastructure assets, valued at US$ 47.7 billion. DEWA provides
reliable world class supplies of electricity and water to more than one million customers. Over the next five years, it will be investing a further US$ 21.8 billion on new investments, financed by internal resources and leveraging public private partnerships; it will also focus on disruptive technologies, increasing the share of clean energy and promoting a green economy.

This week, the federal cabinet approved amendments to the provisions of the Federal Law by Decree No. (9) of 2016 on bankruptcy which adds new provisions in relation to “emergency situations” that impinge on trade or investment, in times of, inter alia, pandemics, environmental disasters and wars. The aim is to allow individuals and businesses to overcome credit challenges. The new amendments stipulate that the debtor shall be exempted from commencing procedures to declare bankruptcy and that he could reach a settlement with creditors wherein he may request a grace period or negotiate a debt settlement within a period of not more than one year. Furthermore, if the competent court approves a bankruptcy application, it will not involve the debtors’ funds that are needed to keep businesses running during the set period in case they defaulted on debt for emergency. In certain cases, it also allows the possibility to allow businesses to secure financing to keep them in survival mode.

Following their August announcement, the federal Ministry of Economy will now begin implementing a framework of thirty three initiatives to help boost economic growth and attract investment. Among them include the development of trade, green economy and food security, as well as finance, energy and health sectors – all of which are meant to lift the country’s economy from the impact of Covid-19. Initially, the plan, encompassing three sections, is to focus on fifteen major initiatives, followed by the second phase which will provide complementary support that enables the rapid economic recovery of sectors, with the final one focussing on supporting vital sectors and pave the way for “sustainable and flexible development”. HH Sheikh Mohammed bin Rashid Al Maktoum reiterated that the recovery was the top priority for the country’s economy in the short term, but long-term plans will make it more stable and diversified. He also commented that “we want a competitive national economy, well integrated, acting proactively, and make quality strides.”

NY Koen Group is among the bidders for Israir, Israel’s third largest airline. The Dubai-based holding company’s subsidiary, Aero Private Jet, (with operators and private business jet owners around the world, with access to over 7k planes and 4k airports) will make the bid. The Israeli airline is the country’s biggest tour operator and arranges European and regional travel packages and has reserved slots for commercial flights from Tel Aviv to the UAE, and has already booked eight round-trip flights to Dubai this month. Established in 2003, the NY Koen Group is also involved in various sectors, including jewellery, digital technologies, construction and security.

A lot has gone on in the past month since the UAE normalised diplomatic relations with Israel, with several bi-lateral trade and investment agreements already signed. Recent estimates from Israel forecast that trade with the UAE could eventually create a total of US$ 4 billion and 15k jobs in sectors such as aviation, financial services, security, telecoms, technology and tourism. Trade is also likely to grow for Dubai, as more physical goods with many Asian exports flowing through the emirate en route for Israel. Indeed, last week, the MCC Paris became the first cargo ship to sail between the two countries in what Israeli’s Prime Minister Benjamin Netanyahu called “the beginning of something big”.

With Israel looking to upgrade port facilities at Ashdod and Haifa, DP World is working with Israel’s Dover Tower to expand its presence in the country. The world’s biggest port operator, with 127 global operations and handling 10% of all the shipping containers, posted a 3.9% fall in H1 to 33.9 million TEUs (twenty-foot equivalent units), but this was better than the global average 5.6% decline. With the global economy set to decline by 4.4% this year, DP World, employing 56k worldwide, will post another drop in business in H2 of up to 6%.

In a similar vein to its marine neighbour, dnata continues to expand its global empire and this week entered the Indonesian market, with a partnership with PT UNEX Rajawali. This brings the Dubai-based airport operator’s reach, in ground handling, cargo and catering services to thirteen airports – and eighty airlines – in the Asia-Pacific region. Its new partner is based at Jakarta’s main international airport. UNEX is a leading ground handling and cargo warehouse company and its partnership with dnata, by making joint investments in facilities, equipment and training, will enhance ground handling capacity in Indonesia, the fourth largest country in the world, (with a population of 260 million), and the largest economy in SE Asia. With over 17k islands, it makes air travel the preferred and most efficient transportation method for both passenger and cargo across the nation.

By the end of August, the number of subscribers in the UAE telecommunications services, including mobile phones, landlines and Internet, rose 1.0% on the month to 21.8 million, of which mobile phones accounted for 16.7 million phone subscribers, a monthly  1.3% growth of 206k. Prepaid mobile phone subscriptions totalled 13.1 million, while post-paid mobile phone subscriptions stood at 3.6 million, with landline subscriptions remaining flat at 2.1 million, as did the total number of internet subscriptions at 3.0 million.

Etisalat posted a 6.0% hike in Q3 profit to US$ 654 million on the back of revenue nudging 0.5% higher to over US$ 3.5 billion. Operating expenses at US$ 2.1 billion came in 1.0% lower, whilst overall capital expenditure decreased by 17.0% to US$ 409 million. YTD, its nine-month profit increased 3.7% to US$ 1.9 billion, with revenue 0.5% higher at US$ 10.5 billion. The country’s biggest telecom operator saw its aggregate subscriber base expand 1.0% to reach 149 million by the end of September, as its subscriber base in the UAE grew to 12.1 million. The pandemic was the main attribute that saw UAE revenue down 3.0%, as mobile and fixed voice, outbound roaming, visitor roaming and handset sales declined. However, Etisalat Misr and improvement in its operations in Pakistan drove a 3.0% increase  in international revenues.

Meanwhile Emirates Integrated Telecommunications Company, posted a massive 116.2% in Q3 profit, driven by the sale of its stake in Khazna Data Centres. Better known as du, and the UAE’s second-biggest telecoms operator, last month it signed a US$ 218 million agreement with the Technology Holding Company to sell its minority stake in Khazna which drove the bottom line higher despite a Q3 12.4% revenue fall to US$ 733 million. Its Q3 capex of US$ 139 million equated to about 19% of its revenue. du is owned by Emirates Investment Authority (51.12%), Mubadala Investment Company (10.06%) and Emirates International Telecommunications (19.7%), with the remainder of shares in public hands.

Dubai Islamic Bank posted a 19.0% decline in Q3 profit to US$ 274 million, driven by increases in impairment provisions (by 60.0% to US$ 145 million) and operating expenses (16.0% higher at US$ 181 million). The country’s largest Sharia-compliant lender, following its acquisition of Noor Bank earlier in the year, saw nine-month profit down 21.0% to US$ 845 million, with impairment charges and operating expenses both heading north by 151% to US$ 722 million and 23.5% to US$ 572 million. YTD, customer deposits grew nearly 31% to US$ 58.5 billion, while net financing and sukuk investments during the period rose 27% to US$ 63.9 billion.

Dubai’s biggest lender, by assets, posted a Q3 US$ 695 million decline in profit to US$ 425 million as pandemic-driven impairment allowances climbed 41% to US$ 586 million. Emirates NBD saw its net fee and commission income decline 16% year-on-year to US$ 260 million. The nine-month YTD figures see a 55% slump in profits to US$ 1.5 billion, with impairments jumping 131% to US$ 1.7 billion and the ratio of non-performing loans rising to 6.0%, compared with 5.6% a year earlier. Over the period of the pandemic the bank has provided US$ 1.8 billion of interest and principal deferrals to over 98.5k of its clients.

Emirates Central Cooling Systems Corporation awarded contracts worth Dh190 million to construct a new district cooling plant, with a capacity of 50k refrigeration tonnes, in Business Bay, to be completed by Q3 2021. Last year, it awarded contracts totalling US$ 300 million. The Dubai-based district cooling provider, established in 2003, is a JV between DEWA and Tecom Investments and currently provides the area with 135k refrigeration tonnes, to 62% of the area’s buildings. Overall, the company provides 1.53 million refrigeration tonnes to 1.2k buildings in Dubai. Last year, Empower posted an 8.3% hike in profit to US$ 237 million, on the back of a 7.9% increase in revenue to US$ 597 million.

The bourse opened on Sunday 18 October and, 71 points (1.9%) lower the previous fortnight, lost a further 9 points (0.4%) to close on 2,186 by 22 October. Emaar Properties, US$ 0.09 lower on the previous four weeks, traded US$ 0.01 down to US$ 0.71, whilst Arabtec is now in the throes of liquidation, with its last trading, late last month, at US$ 0.14. Thursday 22 October saw the market trading at 215 million shares, worth US$ 50 million, (compared to 214 million shares, at a value of US$ 45 million, on 15 October).

By Thursday, 22 October, Brent, US$ 0.44 lower the previous week shed US$ 0.32 (0.7%) to US$ 42.46. Gold, US$ 4 (0.2%) lower the previous week, slipped US$ 2 (0.2%) to close on US$ 1,908, by Thursday 22 October.

The Boston-based Fidelity Investments plans to hire a further 4k over the next six months in areas including financial advisers and customer service agents, as it benefits from the pandemic-driven economic turmoil. Although some other asset managers – such as Invesco and Franklin Resources – are struggling, the bigger players, including Fidelity and Blackrock, are reporting record assets, as investors pour their money into more diverse fund firms, especially ones with passive, index-tracking products. Others are cutting payroll numbers, such as Nuveen, with 4% of its staff taking voluntary buyouts this year, and Franklin Templeton ditching 8% of its staff, even though it just acquired Legg Mason. Meanwhile, last week, Morgan Stanley agreed to pay $7 billion for Eaton Vance.

Purdue Pharma has finally settled with the US legislature as a US 8.3 billion settlement was agreed to plead guilty to criminal charges to resolve a probe of its role in fuelling America’s opioid crisis. Despite the fact that the most serious claims against Purdue Pharma have been resolved, the pharma company will have to face thousands of private cases by states and families, impacted by the abuse of the painkiller. There are some critics who consider that the Sackler family got off very lightly considering their company’s contribution to the scandal. Some would argue the settlement too lean on the owners, the Sackler family, for a crisis that has claimed more than 400k US lives over the past twenty years. Most of the US$ 8.3 billion fine will not go to the Department of Justice but to others involved, including the communities ravaged by opioid abuse that have sued the company. Part of the settlement agreement will see the firm admit to conspiring to defraud the US and violating anti-kickback laws in its distribution of the addictive painkillers, including payments made to healthcare companies and doctors to encourage prescribing the drugs. It is also claimed that the Sackler family transferred over US$ 10 billion out of the company in the ten years to 2017, knowing that regulatory scrutiny was increasing.

With its post-pandemic revenue stream drying to almost zero, from a previous year’s US$ 215 million sales figure, the Birmingham-based NEC Group is to cut 450 jobs, equivalent to about 55% of its workforce; it also supports 29k full-time equivalent roles in the supply chain.  The firm, the largest in the UK events sector, runs five venues including the National Exhibition Centre, Resorts World Arena and International Convention Centre. Its biggest venue has been used by the NHS for the Birmingham Nightingale Hospital, free of charge. To make matters worse, it was unable to access the government’s Job Support Scheme and is now forced to close again, with the new strict safety measures in place.

Four of the major supermarkets – Asda, Morrisons, Sainsbury’s and Tesco, with 14.5%, 10.1%, 14.9% and 26.8%, and accounting for 66.3% of the UK supermarket market share, have already cut their prices. Now, Co-op and Waitrose are lowering prices ahead of the Christmas rush. The former is investing US$ 65 million to lower prices on three hundred branded and own-brand products and is launching a value range. Waitrose is reducing prices on two hundred of its most popular own-label products. However, as they only account for 11.7% of the market share, they lack the buying power of the Big Four and the two discounters Aldi and Lidl. Waitrose will also suffer because it is considered to be pricier and more upmarket than the other players in the market and deemed not so attractive to a cost-conscious clientele. Meanwhile, the Big Four will have to pre-empt any attempt by the two German interlopers to grab market share as happened during the GFC of 2009.

As expected, Goldman Sachs, which agreed that it had paid in excess of US$ 1 billion in bribes to win work raising money for 1MDB, has finally agreed to pay nearly US$3 billion to end a probe by US authorities. Goldman Sachs put it down to an “institutional failure”, whilst authorities said it reflected Goldman’s “central” role in a “massive corruption scheme”. Overall the disgraced bank will pay about US$ 5 billion in penalties – about two thirds of its 2019 profits – to regulators around the world. It will also reclaim US$ 174 million in compensation awarded to executives at the time the scandal was unfolding.

Following a year of intensive investigations, the US government has filed charges against Google, on the grounds of abusing its dominance to preserve a monopoly over internet searches and online advertising. This is biggest legal challenge ever undertaken by a US administration, (involving the US Department of Justice and eleven other states), against a major tech company, and comes at a time when the biggest tech firms face intense scrutiny of their practices at home and abroad. The focus of the case is that Google pays each year to ensure its search engine is installed as the default option on browsers and devices such as mobile phones, with the result that Google owns and controls the channels for about 80% of search queries in the US. The lawsuit also indicated that “general search engine competitors are denied vital distribution, scale, and product recognition – ensuring they have no real chance to challenge Google”.  There is no doubt that this is a forerunner of the first of many in the US that challenge the dominance of big tech firms and potentially lead to their break-up and it is an indication that the Trump administration is willing to take on the big tech firms which will have an “Escape from Gaol card” if the incumbent loses the presidential election next month. Google has had problems in Europe and is currently appealing US$ 9.5 billion in fines from the EU, in three separate cases since 2017.

There is no surprise to see that the British Retail Consortium is accusing Visa and Mastercard of cashing in during the coronavirus crisis by charging “excessive fees”, claiming that the fees charged by payment firms have almost doubled in the last two years. It issued a warning that these extra costs will put an additional annual cost of US$ 52 on each card, claiming that “if a phone or energy company increased their fees by such an amount there would uproar. It’s an abuse of a dominant market position by these companies.” Both card companies, that control 98% of the UK market, refute the claims. However, retail and hospitality trade bodies have called for action to tackle card fees, as more of them have been forced to accept only card payments due to the pandemic and social distancing rules. With such market dominance, no wonder their charges were – and still are – so high; the BRC noted that the average cost of a cash transaction to retailers was just US$ 0.0187, accepting payment by debit cards costs retailers US$ 0.0774, while credit cards cost them US$ 0.2423. They seem to have made their card schemes so complex to flummox users (and regulators) and extract more profit – the BRC said the increases in scheme fees over 2017 and 2018 were 39% and 56%.

One of the few sectors to join the likes of gaming, online fashion and grocery, that have actually benefitted from the pandemic, is comics.  The three-year old Geek Retreat – which specialises in “all things geeky” including comics, memorabilia and tabletop games – plans to open another one hundred stores before the end of 2022, creating at least 600 jobs. With fourteen UK sites already, which combine retail space with cafes and areas to play games and hold events, the Glasgow company is hoping to benefit from the expansion of the wider US$ 10.5 billion games and hobby sector, which is expected to increase by at least 3% this year.

A 14.5% rise in July was followed by a15.6% hoist in August in UK house sales, buoyed by the roll-out of the government’s nine-month Stamp Duty Land Tax holiday on properties up to the value of US$ 670k; it is estimated that 90% of all first-time buyers will save an average US$ 6k. HM Treasury data estimated that this move has protected almost 750k jobs in the housing sector and wider supply chain,. such as housebuilders, estate agents, tradespeople, DIY retailers and removal firms (How would a similar move from the DLD work here in Dubai?). Meanwhile, UK house prices increased 3.4% over the year to June   with the average price being US$ 315k. According to a Building Socieities Associations’ study, 37% of Brits say now is a good time to buy a property, compared to 25% in June. However, it is becoming more difficult for first-time buyers because of recent price hikes, and money tightening by banks because of the current recession.

The aviation sector, including major airlines, airports and tour firms, is one of the most vocal sectors in the global economic environment and it has made it known how badly it has been hit by Covid-19. This week, there are even more examples on how revenue, profits and payroll numbers have slumped and the actions taken by some of its leading players. The global industry body warned that hundreds of thousands of aviation jobs are at risk without more state aid, as it downgraded its 2020 traffic forecasts, after “a dismal end to the summer travel season”. IATA has forecast that this year’s traffic will be 66% lower than it was in 2019 and that it will be at least 2024 before air traffic reaches pre-pandemic levels. There is also concern that the pandemic will cause airline losses of more than US$ 84 billion globally in 2020.The expected rebound has not materialised because of a second surge in Covid-19 cases and more government restrictions. IATA chief executive Alexandre de Juniac has called for Covid-19 tests to be routinely carried out on passengers before flights depart, which could have the double whammy of raising consumer confidence in air travel and making governments more willing to open borders.

Cathay Pacific expects to run just 10% of its flight schedule for the remainder of this year and be flying 25% and 50% of capacity in H1 and H2 2021, assuming a vaccine has been made available. September passenger numbers of just 47k, including its budget carrier Cathay Dragon, were 98.1% lower on the year; in 2019, it carried 35 million passengers on 81k flights. Cargo performed slightly better, carrying 109k tonnes, down 36.6% compared to September 2019. The fact that it is still running is the result of a US$ 5.0 billion bailout package from the Hong Kong government.

Meanwhile, the world’s biggest airline indicated it would lose 19k jobs this month, with the 31 October end of the government wage support scheme extended to airlines during the pandemic. This will see the American Airlines payroll at under 100k, 30% smaller than it was in March. In addition to the 19k cuts, about 12.5k employees have voluntarily left the airline since March, whilst another 11k will be on voluntary leave in October. Other global carriers have had to lay of staff including United with a possible 36k, Lufthansa (22k)  and 12k from BA.

At least there was a crumb of good news with a former shareholder stepping in to acquire its remaining assets, it seems that collapsed regional airline Flybe could restart operations, on a smaller scale, early next year. Thyme Opco is taking over a regional airline that until its March demise employed 2.2k, carried eight million passengers a year and ran 40% of regional UK flights, from Southampton, Exeter and Belfast City airports. Other carriers have taken over some their former routes but many flights it operated have not been saved.

Probably the most quintessential of Aussie brands, RM Williams, has been acquired by mining magnate Andrew ‘Twiggy’ Forrest and his wife Nicola and returned to Australian ownership having been acquired by Louis Vuitton-backed private equity firm L Catterton. Founded in 1932 by Reginald Murray Williams, he sold the business in 1988 to another SA business, Bennett & Fisher but was driven into receivership in 1993 by banks worried about a US$ 10 million loan. Later it was placed under the ownership of RM’s long-time friend Ken Cowley, in partnership with business mogul Kerry Stokes, until sold to the French in 2013. Its  sixty-eight Australian outlets were closed in March because of Covid-19 and its Salisbury factory, with 400 employees, temporarily closed; another 500 are employees across the country. It has stores in London, New York City and Copenhagen and markets its boots, jeans and other clothing to thirteen countries.

Earlier in the year it was iron ore and last week barley; now it is its cotton industry’s turn to become the latest casualty of Australia’s ongoing trade tensions with China. There are reports that that a 40% tariff could be imposed with Chinese mills having been “discouraged” from buying Australian cotton. The Australian industry has become increasingly nervous about the US$ 600 million market, which accounts for 65% of the cotton grown nationwide. The Chinese government uses a quota system to control the amount of cotton that each mill in the country can import and it seems that spinning mills have been warned not to use Australian product, or risk their quotas being slashed. The government seem confident enough that it could export the cotton not going to China to other countries such as Vietnam, India and Indonesia.

This week, there are two examples from Australia of how bureaucrats can waste public money and more often than not get away with it. This is not only an Australian problem but a global one that some feel is getting worse. The first concerns Australian Post and sees its Chief Executive, Christine Holgate, standing aside pending an enquiry. It is alleged that the company has handed out millions of dollars in bonuses, including US$ 420 “thank you” payments to posties, as well as Cartier watches to four executives  who worked on a multi-million-dollar deal that meant customers of Commonwealth Bank, Westpac and NAB could do their banking at post offices. (The Cartier watches were not as expensive as the Rolexes that the disgraced FIFA supremo, Sepp Blatter, used to hand out to executive members). The good lady is Australia’s highest paid civil servant with a remuneration package of nearly US$ 1.8 million

James Shipton, the chair of Australia’s ASIC, who has also stood aside after it was revealed the organisation paid more than US$ 80k for him to receive personal tax advice, when he moved from the US to head up the corporate watchdog in 2018. There are also concerns about his deputy, Dan Crennan, about a US$ 45k housing cost payment made over two years following his relocation from Melbourne to Sydney in early 2019. It seems that, in both cases, payments may have exceeded the limits set by the Remuneration Tribunal and that the Commonwealth Procurement Rules were not followed. Both men, whose remunerations totalled US$ 610k and US$ 481k, have indicated that they would repay the money.  Very noble gestures on their part.

US September retail salesretail sales grew at the fastest pace in three months, ensuring a Q3 rebound for consumer spending; over the past two months, overall sales have notched up 1.9% and 0.6%. The main drivers behind this boost were put down to consumers tapping elevated savings, with demand also supported by temporary extra jobless benefits and continued hiring. All but one of the thirteen major categories, except electronics and appliance stores, increased in September. However, the double whammy of a marked increase in coronavirus infections and government funding dwindling, because of Congress’s failure to agree on a fresh stimulus package, may bring this rebound to a screeching halt. Although total retail sales have surpassed their February level,  several industries – including restaurants, clothing and electronics and appliance stores – continue to struggle and have yet to return to their pre-pandemic levels; the money that used to be spent in these sectors is now being expended at grocery stores, online vendors and building material retailers.

It seems that Saxo Bank is using Scrabble to forecast what letter should be used to describe what will happen to the US economy. Their projection is for a K-shaped recovery – in which the performance of different parts of the economy diverges like the arms of the letter K – irrespective of who wins the 03 November presidential election. The expectation is that high-income Americans will see jobs come back and income grow, while middle-and lower-class people will not. The historic fact that the rich will still get richer remains an economic truism, despite the pandemic. But the pandemic has ensured two conclusions – that the world needs a weaker US dollar to recover because most of the global debt is denominated in this currency and that the current economic models will no longer be operational post Covid-19.

Interestingly, the bank has predicted three scenarios on the upcoming election – 40% for a Biden victory, 20% for the incumbent to remain in office and 40% for a contested election The firsdt scenario will probably result in a sell-off in equities, particularly in technology, a rally in green stocks and higher interest rates. A Trump victory would cause four more years of disruption to the global order, trigger a relief rally and result in two split Houses, whilst reducing the potential for a fiscal stimulus. If there is a bitterly contested election, the result will be a spike in volatility, sell-off in equities due to uncertainty, a weaker US dollar and stronger gold.

For the fifth straight month, UK retail sales continued their upward progress, as demand for food and household goods ensured that Q3 was the biggest quarterly jump on record, With the September volume of goods sold in stores and online growing 1.5%, the total sales volume came in 5.5% higher than their pre-pandemic level, with Q3 sales 17.4% higher. However, by next month this recovery may fizzle out somewhat because of the end of the furlough scheme and the expected increase in the unemployment rate; also the recent hike in cases and the tightening of restrictions will not help the cause. Most food stores and online retailers have returned to pre-pandemic levels but that has not been the case for clothing stores they have been slower to recover and with still people working from home, fuel sales have remained subdued. One interesting fact was the proportion of online sales now stands at 27.5%, compared to the 20.1% recorded in February.

After falling into negative territory, following the Covid-19 impact, UK’s inflation rate has subsequently moved north  into positivity, reaching 0.2% in July and 0.5% last month; the September increase was a direct result of the Eat Out to Help Out which only lasted throughout August, making restaurant and café meal prices higher; in catering services, the month on month price increase was 4.1%, compared to a 0.2% rise over the same period in 2019. At the same time, transport costs also went up as demand for second-hand cars rose. With data like this, it is more than probable that the BoE will introduce another QE stimulus package before the end of the year, whilst the UK Chancellor will have to spend more public money to try and counteract the impact of returning increased lockdowns.

Earlier in the week, Moody’s Investors Service cut the UK’s credit ratings to Aa3 from Aa2 relating to long-term issuer and senior unsecured ratings. The agency cited weaker growth, eroding fiscal strength and a weakening in its institutions and governance for the downgrade. One positive was a change in the outlook for the world’s sixth biggest economy from negative to stable. The UK is being impacted on a number of fronts – weak economic growth, an absent post-Brexit deal and a rising number of coronavirus cases. Moody’s is concerned that uncertainty surrounding Brexit could further hamper any economic recovery, as there is the possibility of losing US$ 1.2 trillion worth of annual trade, free of tariffs or quotas from next year. The Johnson government would prefer to negotiate a trade deal similar to the one secured by Canada, with a few tariffs on goods. Unfortunately for the Prime Minister, it seems that he will have to make do with a no-deal Brexit that could render all previous trade agreements null.

Michel Barnier has arrived in London in a final bid to strike a highly unlikely post-Brexit trade deal, warning that time is running out.  It is not known whether the EU’s chief negotiator is in London to negotiate with his UK counterpart Lord David Frost, to save his own job or to negotiate a deal. The UK had earlier called off all future talks with the EU but the Frenchman has changed his tone somewhat, now saying that “compromises on both sides” were needed, whilst he must be thinking All I need Is A Miracle!

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