UK Economy Contracts Sharply In March, Travel Sector Slides On Quarantine Concerns

UK Economy Contracts Sharply In March, Travel Sector Slides On Quarantine Concerns

CMC Markets  | May 13, 2020 09:35

European markets have got off to a negative start this morning after a sharp selloff in US markets yesterday. There is rising apprehension as various economies start to take baby steps out of lockdown that a secondary wave on infections, will cause politicians to slam on the brakes, and bring an end to the wave of optimism that has seen equity markets trade strongly off their March lows.

Building sites across the UK have already started to reopen this month and with today’s relaxation of the lockdown rules the best performers on the FTSE100 are housebuilders with Barratt Developments (LON:BDEV), Taylor Wimpey (LON:TW) and Berkeley Group amongst the best performers.

The pain in the travel sector pain looks set to go on after TUI Travel (LON:TUIT) this morning announced that it will have to cut up to 8,000 jobs due to the pandemic. Today’s first half results showed the firm post losses of €845m in the first half of this year, with the bulk of the hit, €740m coming in Q2. Turnover was also lower, down 10% from the same quarter last year to €2.79bn, none of which is altogether surprising.

Despite this the numbers leading up to Q2 were quite strong, offering some hope that, in time, once we return to some sense of normality, that we could see a decent rebound.

Cruise operator Carnival (NYSE:CCL) is amongst the largest fallers today in the wake of yesterday’s announcement that it would be cutting thousands of jobs at its UK operation. The reports of quarantines being put in place for international travel has seen the wider travel sector post losses in the past couple of days with Easyjet and International Consolidated Airlines trading sharply lower, after last night’s admission from Health Secretary Matt Hancock that international holidays were unlikely to be an option for most people this year.

Having only recently been bailed out Aston Martin’s Q1 results were always likely to be a bit of a horror show. With production temporarily halted at its factories revenues fell 60% to £78.6m, while losses rose to £118.9m.

New executive chairman Lawrence Stroll acknowledged the scale of the problems, but with manufacturing restarting, he also pledged to reduce dealer stock by looking to fulfil the existing orders of the new DBX. The company, not surprisingly didn’t provide an outlook but did say the DBX is on track for summer 2020 delivery, with Valkyrie deliveries now planned for late H2.

The shares have slipped lower after the company kept open the option it might need to raise more funds. The company said it was continuing to review all future funding and refinancing options.

Multinational heating and plumbing company Ferguson’s latest Q3 trading update has once again shown the underperformance of the UK operation, which saw revenues drop 4.7% in the first half of this year, with Q3 accounting for a 26.5% fall, in the period to 30th April 2020.

The Canadian operation also underperformed with a decline of 16.4%, while the US managed to stay in positive territory revenue wise with a rise of 1.9%, as the month of April acted as an anchor on the entire quarter. In terms of ongoing operations, which excludes the UK, revenues were slightly higher at $4.75bn. The UK operation is still slated to be spun off under the Wolseley (LON:FERG) brand name at some point in the future.

Germany’s largest bank Deutsche Bank (DE:DBKGn) announced this morning it would be resuming its job reductions program as it restarts its restructuring program, which was put on hold while the German economy was in lockdown. Senior management also said they would be forgoing a month’s pay.

Commerzbank (DE:CBKG) also announced that it was taking a €479m hit on the back of the fallout from the pandemic. Of this morning’s provisions the bank said that €326m were credit losses caused directly or indirectly caused by the outbreak.

This morning’s UK data may not have been as bad as predicted but it can’t disguise the fact that worse is yet to come, as we look back at the monthly numbers for March and extrapolate those out into April and Q2 more generally.

It is already being estimated that April retail sales are likely to decline by as much as 20%, after the latest data from Barclaycard saw a 36% decline in consumer spending from a year ago

The UK economy contracted 2% in Q2, with most of that coming in March which saw a monthly contraction of 5.8%. Of that contraction, private consumption only made up 1.7%, of the decline, which was better than expected. We can probably put this better than expected consumption number down to some of the panic buying we saw at the end of March.

Imports slid 5.3%, however exports saw a decline of 10.8%, while industrial and manufacturing production in March saw hefty declines of over 4%.

In essence there’s not much in this data to offer too much in the way of comfort, as we know April and May are likely to be much worse, as the UK economy starts to take very baby steps out of lockdown this morning. As we look ahead to the summer months its likely to be a long and winding road, towards restarting the economy.

With European markets largely on the back foot this morning US markets look set to start where they left off last night, with a lower open.

On the earnings front we’ll get to see the latest Q3 numbers from Cisco (NASDAQ:CSCO) Systems. The company has been a steady source of income for dividend investors, despite seeing some disruption to its business in China last year due to China, US trade tensions. For its most recent quarter the company reported profits of $0.77c a share, however revenues slipped back by 4% to $12bn, due to rising economic uncertainties. At the time management expected that revenues could be expected to decline further in the upcoming quarter by about 2.5%, with profits expected to come in at $0.80c a share. Since then we’ve seen significant global economic disruption as a result of the rolling Covid-19 lockdowns that has hit demand across the world, which means that consensus estimates have come down to $0.707c a share.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

Original Post

CMC Markets

Related Articles

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (India) English (Canada) English (Australia) English (South Africa) English (Philippines) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 简体中文 繁體中文 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
Saving Changes


Download the App

Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors. is better on the App!

More content, faster quotes and charts, and a smoother experience is available only on the App.