The Sterling pound fell against the US dollar on Wednesday as the UK anticipates a “second wave” of coronavirus cases and the possibility of new lockdown measures dampening economic growth.
The pound fell by as much as 0.4% to $1.26 in early trading and remains unsteady. The new ratio represents a two-month low for the currency.
The latest slide followed comments from Dominic Raab during a Sky News interview, in which he said that the UK government could not rule out a nationwide lockdown, but stressed that it would “take every effort to avoid that.”
Raab’s remarks came twelve hours after Prime Minister Boris Johnson announced new rules intended to curb the rise in COVID-19 cases across England. These include a 10pm curfew for pubs, bars and restaurants, a reduction in wedding guest capacity from 30 to 15, a freeze on sports fans returning to watch games live and a fine of up to £10,000 for those who repeatedly breach lockdown rules. For first offenders, the fine will be £200.
Kenenth Boux, strategist at Societe Generale SA in London, commented that both remarks did not “inspire confidence in UK services or the economic outlook.”
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Despite the fall in value of the pound, the FTSE 100 reacted surprisingly well to the announcement of new restrictions, rising 1.2% during Wednesday trading. A strong dollar benefits the index’s listed companies, as they mostly report their profits in dollars.
The FTSE 250 also opened higher, rising by around 1.1%.
Annie Button offers advice on how smaller companies can remain solvent during a uniquely tough period for business.
The COVID-19 pandemic has been a difficult time for businesses of all sizes - but it may well be the case that small companies have suffered the most. Of course, issues such as fewer people spending money and reduced footfall to physical premises have certainly hurt companies, but there are some financial challenges that have held SMEs back unnecessarily.
However, this doesn’t need to be the case. Small businesses can do many things to ensure that they are not holding themselves back. Here, we take a look at five financial challenges that have been a problem for SMEs through the COVID-19 pandemic.
1. Failing to move away from manual accounting
Through COVID-19, the rise in people working from home has been highly noticeable, and it looks like the trend will be here to stay even after the worst of the pandemic is over. But the need for remote working has created some issues for small businesses that were still reliant on manual accounting and physical documents.
“Business is moving onto the internet and has been doing so since its creation,” says Robin John of Wellden Turbnull. “Traditionally, computer-based accounting was the reserve of big business, and everyone else kept manual records in ledgers, but the advent of new technologies and software-as-a-service accounting platforms has made it possible for businesses of all sizes to operate online.”
If businesses were unable to work from their office through lockdown, it may have created a backlog in their accounts - many SMEs are still trying to recover from this. So, now really is the time to invest in a move away from manual accounting.
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2. Lack of cash flow
Certainly one major challenge for businesses over this period has been a lack of cash flow. But many businesses had their revenue dramatically reduced, while still having to pay out for all of their normal expenses.
The solution that some businesses have taken to stem the issue of lower cash flow has been to make staff redundant or make other cutbacks. But there are other alternatives. The government has made a number of schemes available, and many lenders are offering more flexible lines of credit to allow companies to continue to pay staff and suppliers while waiting for cash flow to return to normal.
3. Not spending on marketing
Now, it might seem that, given the point above regarding cash flow problems, expensive marketing could be one of the first things to cut. However, this is a mistake. At a time when companies need any business that they can get, this is not the time to be reducing marketing spend.
This is especially true if your competitors are reducing the marketing budgets - this will simply make your brand stand out even more than before.
4. Not having a solid business plan (or any at all)
Having a robust business plan with a lot of thought put into it has been an absolute essential for small businesses for a number of years. So, you might be surprised to learn that over 1.5 million SMEs across the UK have no business plan at all. This can cause serious problems.
COVID-19 has certainly caused havoc for companies - but without a business plan to assess and understand what the company needs to do to survive, many SMEs have floundered and struggled. If your small business has no business plan, now really is the time to invest in drawing one up.
Having a robust business plan with a lot of thought put into it has been an absolute essential for small businesses for a number of years.
5. Failing to anticipate expenses
It is important that companies do not live at the edge of their means. In the ideal scenario, your SME should actually keep some money back so that you can deal with those annoying expenses that come up every now and again. If SMEs fail to plan for unexpected expenses they can be left in a very tricky situation.
Final thoughts
There is no doubt that 2020 has been a tough time for SMEs, especially from a financial perspective. But if you can anticipate some of those challenges that your small company will face, it can give you the opportunity to come up with useful solutions. Ultimately, understanding where these challenges can come from gives you the chance to plan for ways to avoid them.
It takes a lot of time, dedication, and practice to become a pro in the trading landscape. You need to learn everything there is to know about your industry, how the markets can change, and even the language that people use to describe the evolution of a share or position. Before you can get deeper into complex concepts like penny stocks or day trading, it’s worth making sure that you have a good grasp of the basics. For instance, do you know how to differentiate between a stock-based mutual fund and an individual investment in the stock market? Today, we’re going to discuss these two solutions at length, to help you understand what kind of investment opportunities you want to get involved with.
The Mutual Fund Solution
A Mutual fund or MF helps you to diversify your portfolio, by giving you a small percentage of a wide selection of different assets or companies. Through a single transaction, you can take part ownership of dozens of different companies or groups at once. This is a great way to build out the number of options you have when you want to avoid having too many eggs in one basket. The more you explore this avenue, the more you’ll learn about different kinds of funds.
For instance, an exchange traded fund is a kind of MF that focuses on an index – such as the S&P solution – one of the best known in the current marketplace. When you invest in these opportunities, you can begin building a much wider portfolio without spending tons of cash straight away. Many people recommend taking the MF route if you’re looking forward to growing your strategy, but you don’t have a lot of money, or you don’t know exactly where to get started.
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The Individual Route
Taking the individual approach to trading means that you have a much more focused way of buying shares in companies and other assets. If you’re interested in spending your money in an awfully specific area, then you can just buy a handful of shares within that single stock. This is a good way to dip your toes into the waters if you’re getting started and you know a particular brand that you’re interested in. Just like with funds, it’s possible to diversify your portfolio over time by getting involved with a lot of different assets individually. However, it often costs quite a bit more to spread your money out in this way, as there are limits to how little you can spend when focusing on one opportunity at a time.
Although the individual route delivers more risk and less opportunity for diversification than the fund option, there are benefits to taking this approach. For instance, it’s unlikely that any combined strategy with an MF will give you a meteoric rise in value over a short space of time. On the other hand, you can see this happen quite often with the right single solutions. As with most things in finances, the right strategy is all about finding the balance between risk and reward.
Stock futures were mixed on Friday ahead of the August jobs report, potentially signalling a continuation of Thursday’s equity selloff that rocked Wall Street.
Futures tracking the S&P 500 alternated between gains and losses, rising as much as 0.7% before the increase was wiped out. Nasdaq Composite futures remained in the red, sliding 1% after a 5% slide on Thursday.
Without any obvious catalyst, stock markets saw precipitous losses during Thursday trading. Both the Nasdaq and the S&P 500 suffered their worst performance in almost three months, with the Dow Jones also seeing a loss of 3.5%.
Tech stocks were most adversely affected as investors booked their gains. Apple’s market valuation fell by a record $180 million, and the remaining members of the “Big Five” – Alphabet, Amazon, Microsoft and Facebook – each falling between 4% and 8%.
Also notable was Tesla’s 9% tumble, its share value having increased by over 400% since the beginning of 2020.
Jeffrey Halley, senior market analyst at Oanda, described the selloff as “a well overdue thumping” for the stock markets. “The technical expression is a downward correction in overbought stocks after an intense period of one-way price action higher,” he said.
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Investors are currently awaiting the August jobs report from the US Department of Labour, which is expected to show the creation of 1.4 million jobs during August – down from July’s reported 1.76 million, owing in part to the rolling back of the government’s coronavirus aid and a round of layoff announcements from major companies.
European stock markets opened higher on Tuesday, building upon the unusually strong gains seen on Monday in spite of the reported contraction in the German economy.
Most major markets were up by 1% at the opening bell before fading later in the day. By mid-afternoon the DAX had risen by 0.6%, the CAC 40 by 1% and the IBEX 35 by 1.1%.
The FTSE 100 was a notable exception to the rule, having slipped 0.2% -- likely influenced by UBS having downgraded its forecast for UK GDP in 2020 earlier in the day. The FTSE MIB, however, gained 0.8%.
It is likely that investor sentiment was boosted by the outcome of a phone call between US Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He, in which steps were taken towards a Phase 1 trade deal.
“Both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement,” the US Trade Representative’s office said in a statement on the call.
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News of the call had a definite impact on Asian currencies and global stocks, as IKON Commodities’ director of advisory services Ole House remarked that the positive US-China talks were “bullish for most commodities”.
The day’s stock market gains came in spite of new data released in Germany confirming that its economy contracted by 9.7% in Q2 which, while steep, largely beat analysts’ expectations. Dutch bank ING hailed the release as evidence that Germany was past the peak of the COVID-19 pandemic, calling the data a “final glance in the rearview mirror”.
New data from the Office for National Statistics (ONS) has revealed that UK government debt passed £2 trillion for the first time, reaching £2.004 trillion in July -- £227.6 billion more than last year’s figure.
The unprecedented rise in government borrowing in 2020, with the months of April to July each posting the highest levels of borrowing since records began in 1993, can be credited to spending on anti-COVID-19 measures like the Coronavirus Job Retention Scheme. ONS remarked that this is the first time that government debt has risen above 100% of GDP since the 1960-61.
Ruth Gregory, senior UK economist at Capital Economics, noted that July’s borrowing figure of £150.5 billion “is close to the deficit for the whole of 2009-10 of £158.3bn, which was previously the largest cash deficit in history, reflecting the extraordinary fiscal support the government has put in place to see the economy through the crisis."
Coinciding with the new release on government debt, further data showed that activity in the UK’s private sector grew at its sharpest rate since 2013 during August. The Composite Purchasing Managers’ Index (PMI) read at 60.3 on Friday, beating analysts’ expectations and easily surpassing July’s figure of 57, indicating accelerated growth across the sector.
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“The combined expansion of UK private sector output was the fastest for almost seven years, following sharp improvements in business and consumer spending from the lows seen in April,” commented Tim Moore, economics director at HIS Markit.
Meanwhile, separate figures from the ONS also revealed that the UK retail sector rebounded faster than expected between June and July, with a 2% increase in sales volume where analysts had predicted only 0.2%.
The quantity and value of total reported also saw an increase of 4.4% from February, beating pre-lockdown figures.
APIs allow us to make payments seamlessly, reaching the global marketplace at our fingertips, by transmitting information from one piece of software to another.
But as APIs become increasingly part of our day-to-day transactions, how can we make sure they are the best fit for the service users and that they do not fall into the trap of prioritising style over substance? Finance Monthly hears from Henry McKeon, Innovation Architect at moneycorp.
Banks, fintechs and APIs
For incumbent banks, APIs give the opportunity to expand their customer reach, by offering a more accessible range of services, along with potential partnership opportunities with fintechs. However, due to the business model of the bigger banking institution, they are inherently less agile than their fintech counterparts, meaning they often come up against barriers in the development of their API offerings.
On the other hand, we see a number of fintechs who rush to get their API service to market in order to serve their customer base – who are more likely to be tech-savvy. And while they have an agile business model that allows then to be flexible in adapting customer solutions, they don’t have the heritage and pre-built trust with the general public, along with the years of customer feedback to implement into their systems.
The customer at the core
Fundamentally, a successful API has the customer at the very core. In the first instance, it’s vital that the provider looks at the specific customer requirements and relates those needs directly to the API services. Working closely with end customers helps to provide a better understanding of customer requirements and helps to structure the API offering. In building an API offering, developers should look to engage a number of existing customers to understand their requirements and to offer the functionality that would service clients across a wide variety of industries and needs.
Fundamentally, a successful API has the customer at the very core.
Some customers need efficiency in order to operate at scale; keying payment transactions manually via a web portal doesn’t scale and is error prone. Mass payment file processing provides efficiency and reduces errors but is not always what our high-tech customers are looking for. They want open API services so that they can link their platform directly to payment and foreign exchange services, they want to drive transactions from their own platforms directly. Having the ability to access services via API instead of via files provides the ultimate flexibility.
Building a central set of API endpoints, which provide the core banking on a multi-currency wallet, global and local beneficiary validation, international payment capabilities, peer-to-peer facilities for instant transfers, and 24/7 multi bank dealing and transactional and statement capabilities is part of the core requirement which help service customer needs.
Different industries have different requirements
The diverse needs of the customer journey are put into perspective when looking at invoice factoring customers who service short term debt. They need strong banking facilities for receiving and auto-allocating incoming money. Receiving is a key part of the banking offering, so doing that quickly and across a multi-currency account is a core part of our offering. Having account tiering (Parent-Child segregation) also helps with segregating money and reconciliation.
Invoice factoring companies need efficient pay out capabilities, for paying suppliers (early) and paying back to investors at the end of the agreed term. As a result, the ability for an API to provide speed, global coverage and multi-channel capabilities are crucial. Building receiving information into the API, providing instant access to balancing and received funds, along with the referencing on incoming money therefore becomes a fundamental requirement. This allows customers to understand the source of the money, so they can do checking an allocation on their own platform.
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Freelancing companies are another good use case for APIs. By their very nature, they are collecting and paying consultant salaries and need to be able to capture consultant bank details accurately and securely. In addition, they want to be able to validate these bank details at the point of capture, instead of at the point of payment, in order to avoid any errors or delays. Having the ability to validate local and global bank routing information at the point of entry using an API is a big advantage. Having a validation rules engine enables clients to dynamically configure the capture screens on the source freelancing system. In showing the mandatory banking fields required for each country and currency, it provides clarity on the required fields and validation of the banking details captured as part of the API offering. This functionality fundamentally helps eliminate payment failures, reduce rework and costs in the payment process.
When working with clients running freelancing sites, you’ll often find that they also require FX conversion and payment facilities which need to be embedded into the API to facilitate global pay out requirements. Local payout facilities also help reduce costs of transmission and receipt, as sending through expensive international channels is not always suitable.
This is also echoed in the requirement for shipping companies, that need to be able to pay efficiently for port calls globally. Having access to a wide range of international payments routes and currencies is essential to provide a full service. For example, at moneycorp we have partnered with Inchcape Shipping to provide Smartpay which services the world's maritime industry. Smartpay simplifies the payment process, providing efficiency and transparency and helping to centralize treasury and FX and payment services for the group.
FX providers give substance and style
In the fast-evolving world of API solutions, style is impossible to achieve without substantive attention to detail. This is even more apt in the space of foreign exchange, where achieving speed, efficiency and security can be more of a challenge due to the nature of banking across borders. In this space, to be successful, an API needs the agility of a fintech to evolve to rapidly changing consumer needs but be backed by substantive banking networks and expertise to execute payments securely and quickly across currencies, markets and time zones.
Iskander Lutsko, Chief Investment Strategist and Head of Research for ITI Capital, offers Finance Monthly his perspective on how US markets are likely to trend in the latter half of the year.
Throughout the first six months of 2020, world markets have been volatile to say the least. Global stock index values have so far been characterised by record beating losses and resurgent gains; The Dow Jones and FTSE 100, for example, dropped more than 20% in March, but have already regained much of those losses in the time since. Additionally, the Nasdaq recently hit a record high, and the S&P 500 reached a local high at the start of June below an all-time high on 19 February 2020, and a severe dip in March.
The primary reason for this market volatility is not the US and China trade-related disputes or any other geopolitical market-sensitive tensions which have become an essential part of the global volatility environment since 2018. Quite clearly, markets have been impacted most prominently by COVID-19, and none more so than in the US, which is the world’s largest economy, reserving currency account for 65% of all global transactions – and now also the epicentre of COVID-19, accounting for 26% of total recorded infections worldwide.
All eyes have been on the US in recent weeks. Controversial decisions to reopen certain aspects of society and reduce lockdown measures have seen the number of infection rates rise across the country after a slight decrease. As a result, US equity markets have mostly been driven by HF flows being reallocated into IT stocks, primarily in those that benefited from quarantine. Hence, cyclical companies are trading, on average, 30% below its pre-COVID levels, as opposed to IT companies and biotechnology companies which recorded historical highs.
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However, this is not a second wave; it is a mid-cycle of the first. As in the sea, waves are usually preceded by a trough, and we don’t expect the official trough of the first wave to arrive until at least the end of August. From there, we might expect a second wave of the pandemic to hit in November or December 2020. Of course, this is all speculation, and entirely dependent on weather, vaccinations and lockdown measures – however, as analysts, it’s our job to predict the most likely scenario based on the data that we have, analyse fluctuations and predict market movements accordingly.
Thus, we have crunched the numbers and come to the conclusion that the peak of the current market run will last two months, from the end of July until the end of September, coinciding with a hopefully declining number of cases. Before that, correction and consolidation are likely to dominate, implying that there will be high demand for gold and US corporate bonds, bolstered by a strong US dollar positioning against currencies in Europe and emerging markets.
As soon as investors gain confidence, either through success stories over vaccine trials or new evidence of the infection rate declining in the US and other countries, abundant cash and excess global liquidity from central banks should push the S&P 500 to record highs. However, for that to happen, countries will need to bring back temporary quarantine and policy measures to reduce further risks of the virus spreading.
According to our base scenario, we could see the S&P 500 heading to 3500 points by end of September, pulled by oversold companies from the production and service sectors of the U.S. economy.
As soon as investors gain confidence, either through success stories over vaccine trials or new evidence of the infection rate declining in the US and other countries, abundant cash and excess global liquidity from central banks should push the S&P 500 to record highs.
But risk will not fade away entirely - it’s worth also remembering that the US presidential election is imminent. Even in a ‘normal’ year this election would be considered unique, as former Vice President Joe Biden faces off against Donald Trump, whilst celebrities such as Kanye West have put their two pence in (and quickly withdrawn it), it’s fair to say that US politics has, and will continue to play a role in market volatility in 2020.
If Biden wins, the market will probably see strong sell-off, as his first policy actions will be aimed at restoring corporate taxes to levels seen before Trump's cuts, though it’s worth mentioning that this will be gradual, as it would be unwise to raise taxes at times when 18 million are still unemployed in the USA compared to pre-COVID numbers. Biden also plans to significantly reduce budget spending, which could top contribute to an unprecedented 20% of GDP this year, up from 4.7% in 2019.
Furthermore, if no vaccine will be in place it’s likely that the second wave of the pandemic could come in November or December, coinciding exactly with the presidential election. Hence, markets will be extremely shaky during this period, the extent of which can not be accurately predicted until it’s closer to the time, but certainly worth remembering for keen eyed investors and traders.
Therefore, for short term returns, there are good chances of buying cyclical stocks at the dip now, presenting lucrative opportunity for opportunistic investors. However, in these unprecedented times, almost anything can happen, and it is strongly advised that asset managers and traders looking to expand their portfolio seek professional advice aided by cutting edge technology to ensure that they are making the most informed decision available to them.
New figures released by the United States Department of Labor on Thursday revealed that 1.3 million people filed for unemployment benefits in the past week – 50,000 more than the expected 1.25 million.
Coinciding with a spike of 75,000 coronavirus cases in the US, the highest single-day increase yet recorded, the disappointing unemployment statistics had a knock-on effect on investor enthusiasm that soon became visible in the markets. The Dow and S&P both opened down 0.7%, and the Nasdaq saw a loss of 1.1%.
“The mild risk-off tone to the start of the US session is keeping stocks in the red after a softer European session,” commented Neil Wilson, remarking that the prominence of US unemployment figures “cast a shadow” over global markets.
Outside the US, surprising slides were also seen in prominent Asian markets, with a fall of 4.5% in the Shanghai Composite, 5.3% in the Shenzen Component and 1.6% in the Hong Kong Hang Seng. After reports emerged of better-than-expected Chinese GDP, indicating an 11.5% month-on-month increase in economic output in June, these stock market tumbles were especially jarring.
Even less-affected European markets still saw a decline, with a 0.3% slip recorded in both the FTSE 100 and the DAX and a drop of 0.4% in the CAC 40 by the afternoon.
Detsche Bank strategist Jim Reid commented on Friday that the Chinese markets’ loss could be attributed to a 1.8% dip in June retail sales, adding that a recent jump in confirmed COVID-19 cases in the region “seems to also be acting as an overhang.”
Early trading on Monday saw mass stock sell-offs around the world, with investors’ appetite for risk newly dampened by a resurgence in confirmed COVID-19 cases. Markets in Europe, Asia and the US each saw broad losses.
In Europe, London’s FTSE 100 opened down 2.1%, while Frankfurt’s DAX and Paris’s CAC 40 shed 2.8% and 2.4% respectively.
US futures painted an equally gloomy picture, which was largely confirmed as trading opened. The Dow Jones Industrial Average fell by 2.4%, S&P 500 futures by 1.9%, and Nasdaq by 1.4% on Monday morning.
Overnight losses were also seen throughout Asia, with Japan’s Nikkei losing 3.4% and the Hong Kong Hang Seng falling by 2.1%. China’s markets saw comparatively slight losses; the Shanghai Composite fell by 1% and the Shenzen Component by 0.5%.
Analysts suggested that the market pull-back may be linked to a spike in cases in Beijing, which saw localised quarantine measures introduced as a response.
In a statement on the markets on Sunday, Ed Yardeni, president and chief investment strategist at Yardeni Research, commented: “Now that reopening is happening, there’s fear of suboptimal results: less social distancing triggering a second wave of the virus, followed by another round of lockdowns.”
Monday was a day of contrasts for the US economy, as stocks continued to bounce back even as the National Bureau of Economic research confirmed that economic growth hit a peak in February and has since been contracting.
As it emerged that the economic downturn began before lockdown measures were put in place in the US, but after China and other countries were severely struck by COVID-19, the Nasdaq was reaching an all-time high at 9,924.75 points, a bounce of 44% up from its March 23 low.
The S&P 500 also saw a gain of 1.2%, finally recouping all of its COVID-induced losses from earlier in the year. At the same time, the Dow Jones Industrial rose by 1.7%.
The markets’ optimism can be traced back to the Burea of Labor Statistics’ surprising announcement on Friday that unemployment in the US fell by 1.3% in May, hinting at a faster economic recovery than expected. Though the accuracy of these figures has since come under dispute, the positive sentiment has remained.
European stocks were not buoyed by America’s enthusiasm, with Tuesday morning seeing Germany’s DAX slide by 1%, accompanied by a dip of 0.6% from Britain’s FTSE 100 and 0.7% by France’s CAC 40.
Lee Wild, head of Equity Strategy, cautioned investors that “the full economic consequences of the pandemic are still to be felt.”
As the stock markets fluctuate and countries head into recession, we're starting a series looking at the stocks with the most potential for good returns with analysis and expert from the Finance Monthly team. This week, we're looking at Countryside Properties and Royal Dutch Shell:
Countryside Properties
Covid-19 has severely hit the housing market in the UK and this morning FTSE 250 company Countryside Properties PLC (CSP) reported that it lost completions and land sales in March which has impacted profit by £29 M and increased debt by £83 M. As of writing the share price had dropped 10% at the opening. With the housing market key to any economic recovery I would expect to see developers to do much better in the coming months as the lockdown is eased.
Royal Dutch Shell
With the world’s economies grinding to a halt oil prices have hit new lows in recent weeks. Royal Dutch Shell Plc (RDSA: LON) has seen its share price drop by over 52% from its 12 month high but there is no doubt that oil will be in great demand once the economic recovery finally gets underway. It seems to me that the world’s biggest players in the energy/petrochemical sector have enough in reserve to weather the storm and Shell, in my opinion, did the right thing but cutting its dividend – the first cut since WWII. No doubt it will be a bumpy ride ahead, but Shell stock looks like good value as things stand.
Please invest responsibly. Views expressed on the companies mentioned in this article are those of the writer and any investment undertaken should be independently investigated by the investor. Finance Monthly accepts no responsibility for any investment. For more information visit our stock disclaimer
