The dog that didn’t bark
Written by Juan Palenzuela, associate
Edited by Sabina David Gaffney, partner
Earlier this week, Nationwide building society provided some clues about the state of the housing market here in Britain. It published its monthly House Price Index report, opening with the phrase “Annual house price growth grinds to a halt”.
According to Nationwide, average house prices in the UK decreased by 0.1% in June relative to the same month last year. Compared to the previous month, prices also fell by 1.4%, after taking into account seasonal factors.
Despite the overly lurid headlines that you will probably read as a result of those numbers, they actually confirm that house prices have remained surprisingly stable, notwithstanding the crisis. To put it into perspective, Britain’s GDP could fall by as much as 11.5% this year, according to the OECD. That would make the 4.2% fall from 2009 look like a blip. Back then, however, Nationwide’s Housing Price Index fell by 16.5%.
With unemployment expected to reach just under 8% later this year, a fall in demand for housing is also taking place. Why then are house prices so stable when common sense tells us they should be falling in a similar magnitude to 2009?
It may well be because the supply of houses is also decreasing. Uncertainty is making landlords wary of selling properties, and government policy is supporting that inertia. Mortgage holidays have been extended and house repossessions have been banned by the Treasury until at least 31 October, meaning there is significantly less pressure for would-be sellers to put their properties for sale. A fall in both demand and supply has resulted in the equilibrium price remaining somewhat stable.
The question is, when those policies fade away at the end of the year, will the growth in supply be matched by a similar growth in demand?
Russian voters approved changes to their constitution that will allow president Vladimir Putin to stay in office until 2036, among other things. When the polls closed last night, 30% of all precincts had been counted, and a total of 74% voted for the amendments. The vote was tarnished by widespread international and opposition condemnation. The opposition was barred from organising a campaign and, for the first time, polls were kept open for a whole week to bolster turnout at the polls, despite the pandemic.
Chinese representatives vowed yesterday to stop the UK from granting residency rights to Hongkongers, after the British prime minister announced that up to three million Hong Kong residents are to be offered the opportunity to settle in the UK and apply for citizenship. This was in response to Beijing implementing a new set of national security laws earlier this week that put the agreements reached in the 1984 Sino-British joint declaration under question.
Donald Brydon, the former chair of the London Stock Exchange who was commissioned by the government to review the audit market last year, has once again called on the government to accelerate an overhaul of the sector in response to the Wirecard scandal, in which EY failed to uncover a €1.9bn fraud for several years.
Business and economy
Pirc, the shareholder advisory firm, which works with the UK’s local authority pension funds, has recommended that investors vote against Tesla’s new executive pay deal because it “unfairly enriches the chief executive”. Pressure is mounting over the planned bonus award that could see Elon Musk receiving nearly £40bn this year.
Google announced that it has bought North, a company that makes smart glasses, in the hopes of making the devices a mass-market opportunity. It will be the second attempt from Google, after their infamous Google Glass failed to take off and was phased out in 2015.
Global dealmaking has continued to plunge as a result of the pandemic, the FT reported. Companies have struck just $485bn worth of deals since the beginning of April, down from more than 50 per cent from the same period last year. The fall in activity was particularly sharp in America, where overall acquisitions collapsed almost 90% from a year ago, to $75bn.
Columns of note
Writing for the Financial Times, Jonathan Guthrie says that Germany’s “consensual model” of capitalism needs an overhaul in the wake of Wirecard’s scandal.
Also in the FT, Philip Stephens writes that the Pound holds up a mirror to the world’s view of Britain. In this instance, however, its devaluation could be a route to higher competitiveness in a post-Brexit, post-Covid world.
Source: The Times
What happened yesterday?
Global equities saw a mixed performance yesterday amid encouraging clinical data from Pfizer and BioNTech on the study of a Covid-19 vaccine candidate.
At the close, the Dow Jones Industrial Average was down 0.30% at 25,734.97, while the S&P 500 was 0.50% firmer at 3,115.86 and the Nasdaq Composite saw out the session 0.95% stronger at 10,154.63.
In the UK, the FTSE 100 ended the session down 0.19% at 6,157.96, but the FTSE 250 closed in the green, rising 0.41% to 17,189.43.
In mainland Europe, the benchmark Stoxx 600 managed to reverse early losses and gained 0.24% to 361.19, but the German Dax finished 0.41% lower to end at 12,260.57 while the FTSE Mibtel dipped 0.23% to 19,330.88.
In company announcements:
Sainsbury’s reported an 8.2% increase in sales (excluding fuel) for the 16 weeks to June 27, noting that its sales performance had been supported by new stockpiling behaviours. There was a noted year-on-year decrease in fuel, as lockdown measures restricted travel. The grocer remained cautious regarding its future outlook, stating that it “remains impossible to predict the full nature, extent and duration of the impact of Covid-19.”
Rio Tinto announced the appointment of Peter Toth as group executive for strategy and development. The company reported that Toth will focus on Rio Tinto’s transformation efforts, including changes to its portfolio, addressing climate change and working closely with commercial partners as it operates in “an increasingly complex world”.
What's happening today?
Final Dividend Payment Date
UK Economic Announcements
(09:30) PMI Construction
Int. Economic Announcements
(10:00) Unemployment Rate (EU)
(10:00) Producer Price Index (EU)
(13:30) Balance of Trade (US)
(13:30) Non-Farm Payrolls (US)
(13:30) Unemployment Rate (US)
(13:30) Continuing Claims (US)
(13:30) Initial Jobless Claims (US)
(15:00) Factory Orders (US)
Did you know?
New York City’s tap water is not strictly vegan or kosher, being full of tiny crustaceans called copepods.
House of Commons
Transport (including Topical Questions)
Business Questions to the Leader of the House - Mr Jacob Rees-Mogg
Autumn Opening of Education Settings - Gavin Williamson
Finance Bill: Remaining Stages (Day 2)
Manchester Airport and the local economy - Navendu Mishra
House of Lords
Government's implementation of the Lammy Review - Lord Keen of Elie
Procedure Committee Report 'Parliamentary Works Estimate Commission' - Lord McFall of Alcluith
Orders and regulations
Hong Kong National Security Legislation and UK response - Lord Ahmad of Wimbledon
No business scheduled.