Your weekly economic update from the team at FXD Capital
A good barometer for gauging the world pre-Covid and the one we are emerging into is the fortunes of embattled coworking business WeWork. Back in the heady days of 2019, it was touting a $60bn valuation, domination of office, educational and urban living markets and an expectant IPO. Two years later and it’s very much out for the count on the canvas, limping towards a dubious merger with a SPAC at a valuation south of $10bn. A victim of both self-imposed hubris and a random black swan event that cut to the core.
Recently published financial results from WeWork (it has large bond issuances) shed light on how demand for offices may look going forward. In its Q1 results, aside from a $2.1bn loss, WeWork reported losing 25% of its “members” over the past year. Those who use coworking sites forgo the long leases that traditional office occupants are encumbered with, so WeWork’s fortunes are probably a leading indicator of the kind of contraction that office real estate will incur over the next couple of years.
Gold is finally starting to awaken from its Q2 2020 slumber, reaching its highest level in three months. With continual inflation scaremongering now manifesting in actual data, it was natural that gold would eventually start responding with price rises. Another asset that some choose to call “digital gold” experienced contrasting fortunes this week, with Bitcoin at one point falling by a third. The steep declines were inflicted by a mixed bag of zeitgeisty themes, ranging from Elon Musk announcing an end to Tesla’s experiments with using it for payments, US tax authorities proposing mandatory declarations and China’s severe crackdown on domestic usage.
Data released by Moody’s showed that recovery rates from bankruptcy cases during the pandemic were worse than in previous economic downturns. The average bond recovery rate recorded at 45 cents on the dollar, compared to 59 cents in the 2008 financial crisis. While overall conditions have more nuanced than this simple comparison, it does suggest that the deluge of cheap credit over the past decade has created complacency and stretched corporate balance sheets to the extreme. Easy credit extended to corporates by governments in 2020 spread further icing to an increasingly rich and dense cake.
The UK labour market turned a corner in the first quarter of 2021. Payroll employment rose, unemployment fell faster than expected and hiring accelerated. Unemployment averaged 4.8% during the quarter, down on the previous rate of 5.1% and employment ticked up 0.2% to 75.2%.
Friday morning saw data released showing retail sales growing 9.2% in April, more than double the forecaster consensus of 4.5%. The sharp increase corresponded with the April 12 reopening of non-essential shops. Clothing had a huge jump, and online shopping’s share of sales fell to 30% from 35% as more high street options became available again. Despite everything that’s gone on over the past year, the data shows that retail sales are 10% higher than pre-pandemic levels.
Rishi Sunak can also expect a bonus around autumn time, with public finances reportedly being in a better state than anticipated. According to the FT, the improved economic performance seen in 2021 could see the March budget figures for public borrowing in 2021 reduce from £234 billion to £150 billion. The savings will either pass through to increased public spending or a curtail of planned tax increases.
Federal Reserve meeting minutes from April released on Wednesday. Notable comments were around the increasing support for curtailing monetary policy support if US economic recovery accelerates further. Attendees noted that companies are reporting “tremendous inflation” within the areas of labour, freight and raw materials. Executives are cautiously monitoring whether this is a short-term blip or a sign of prolonged inflation.
Housing starts rose to a 15-year high in March, from low interest rates and macro shift towards larger living quarters away from CBDs. The boom in commodity prices is leading to higher development costs and even supply shortages. Lumber futures have rallied 50% in 2021 alone and 400% since the depths of the Covid crisis last spring.
High-frequency data points towards a solid second-quarter rebound for the eurozone following its double-dip recession. A succession of data points ranging from job adverts, travel patterns and holiday bookings point towards a robust Q2 print in the bloc. Oxford Economics predicts a 1.5% expansion in the quarter.
France reopened outdoor terrace dining this week, a poignant moment representing an easing of a lengthy six-month lockdown.
All the best for the week ahead,
Our weekly column is written by Alex Graham, Economic Advisor to FXD Capital. Originally a bank treasurer, Alex’s weekly roundup intends to provide a conversational, top-down view of what is going on in world macroeconomics and how it impacts business on the ground level.
Would you like to receive FXD Capital’s Insights directly to your mail inbox? Click the button to subscribe to our email newsletters.
This document should be considered a marketing communication for the purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. The information given in this document is for information purposes only and is not a solicitation, or an offer to buy or sell any security or any other investment or banking product. It does not constitute investment, legal, accounting or tax advice, or a representation that any investment or service is suitable or appropriate to your individual circumstances.
You should seek professional advice before making any investment decision. The value of investments and the income from them can fall as well as rise. An investor may not get back the amount of money invested. Past performance is not a reliable indicator of future results. Investment returns may increase or decrease as a result of currency fluctuations.
The facts and opinions expressed are those of the author of the document, as of the date of writing and are liable to change without notice. We do not make any representations as to the accuracy or completeness of the material and do not accept liability for any loss arising from the use hereof. We are under no obligation to ensure that updates to the document are brought to the attention of any recipient of this material. Please note that this commentary may not be reproduced, distributed, disseminated, broadcasted, sold, published or circulated without prior consent from FXD Capital Limited.
FXD Capital Limited is registered in England & Wales (No. 11397216) with its registered office at 3 Lloyds Avenue, London, EC3N 3DS. FXD Markets Limited is registered in England & Wales (No. 11876665). FXD Markets is an FCA registered trading name of Kyte Broking Limited. Kyte Broking Limited registered in England & Wales (No. 02781314) is authorised and regulated by the Financial Conduct Authority (“FCA”) under FRN: 174863 with its registered office at 55 Baker Street, London, W1U 8EW. Kyte Broking Limited is a member of the National Futures Association (“NFA”) under NFA ID: 0288293.