July ends with sunshine and our summary of the global economic news. We’ve also been thinking about the benefits of circular economies… what goes around, comes around!

Earnings season, when many publicly traded companies release their quarterly earnings reports, is underway, and the hot weather may not be enough to lift spirits. European stocks offered disappointing updates on both profits and the economy, reversing the gains made previously over the month. As we are growing accustomed to, big tech acted as a port in the storm, rebounding quickly as earnings surpassed forecasts1. Over the past six months, our daily lives have changed drastically and our reliance on technology has only grown.

The failure to transition smoothly to a socially distanced, but functioning, economy has led Boris Johnson to impose regional lockdowns across large parts of northern England in a surprise announcement last night. A small proportion of the population have abandoned preventative measures such as social distancing and wearing masks, and this appears to have led to the 846 new cases of coronavirus reported on Thursday, the highest this month2.

Although the stamp duty holiday has increased activity in the housing market this month, expected high unemployment and the depth of recession still cast a dim light on retail property. Therefore, it may come as a surprise that the share prices of UK businesses that build retail properties rose this week. This is due to the rumours that the government plans to extend the Help to Buy scheme3, which provides loans to buyers with small deposits under the stipulation that the property must be a new build, effectively directing demand towards housebuilders4.

While the fear of a ‘second wave’ of COVID-19 is rising, Europe was dealt an additional blow as Germany’s economy shrank the most in at least half a century, in the second quarter5. This leaves politicians in a difficult position; they will be desperate to reinvigorate the lagging economy but may be forced to implement stricter lockdown measures. As the largest economy in the Bloc, the 10.1% drop in output is a harbinger for worse elsewhere6. However, hope is on the horizon, as the €130bn approved stimulus package should provide a rebound7, but the outlook is uncertain, as job losses remain a major risk in coming months.

Donald Trump has once again made headlines for the wrong reasons after suggesting the US November election be delayed, at a time when Democrat rival Joe Biden leads in the polls8. Ironically, given the allegations of Russian involvement in the 2016 election9, Trump fears that the mail-in voting system will be subject to fraud. Under lockdown conditions, voters would receive a mail-in ballot, and therefore would not be required to physically turn up and vote. Whilst this arguably does increase the likelihood of foul play, the decision to delay would need the support of House Democrats, who have written the idea off as a non-starter10.

Kodak, the company that used to make everybody’s holiday cameras, has received a $765m US government loan to make ingredients for pharmaceutical drugs. The news shocked investment professionals, with the company having failed to acquire a pharmaceutical company and filing for bankruptcy in 2012. The share price rallied 2,760% mid-week, despite analyst scepticism over Kodak’s ability to efficiently manufacture pharmaceutical ingredients11.

This week, at Holden & Partners, we’ve been thinking about the re-inventing of the wheel – specifically the benefits of moving towards an economic system that is regenerative, restorative and cyclical. It is known as a circular economy12 because waste is eliminated, renewable energy is used and all materials necessary to produce goods are kept within a ‘closed loop’ – endlessly reused and repurposed. Compare this to our current system, known as a linear model, because we ‘take, make and dispose’ of goods13 – an approach that is inherently resource and energy hungry, resulting in high levels of waste to landfill and ecological destruction due to ongoing resource extraction.

The idea that businesses should adopt a ‘Cradle to Cradle’ model was proposed in 2002 by William McDonough and Michael Braungart14 but a new focus on plastic pollution, thanks to Sir David Attenborough in the latest Blue Planet series, has brought the issue to the fore. As a result, companies have faced increasing scrutiny over their packaging and modes of production, which has spawned many ideas on how to increase efficiency.

There are many benefits of incorporating circularity into business models. In utilising by-products and extending stewardship over the goods produced, a greater degree of resilience is built into businesses. Recovering materials that would otherwise be disposed of increases the value that can be extracted from products already in existence, this means there is a financial incentive as well as environmental benefits to retaining control over products and recuperating them to make more.

Finally, we’d like to draw your attention once more to our client survey. We will be closing the survey on Monday the 3rd of August, so if you have yet to respond please take two minutes to answer a few quick questions. https://www.surveymonkey.co.uk/r/9CS3QND

1 https://www.theguardian.com/business/2020/jul/30/amazon-apple-facebook-google-profits-earnings

2 https://www.bloomberg.com/news/articles/2020-07-30/u-k-re-imposes-limits-on-manchester-amid-coronavirus-uptick?sref=1LVTCemH

3 https://www.theguardian.com/uk-news/2020/jul/28/help-to-buy-scheme-may-extend-til-year-end

4 https://www.helptobuy.gov.uk/

5 https://edition.cnn.com/2020/07/30/economy/german-economy-gdp-unemployment/index.html

6 https://tradingeconomics.com/germany/gdp

7 https://www.bbc.co.uk/news/business-52920516#:~:text=Germany%27s%20coalition%20government%20has%20agreed%20a%20%E2%82%AC130bn%20%28%C2%A3114bn%29,move%20is%20designed%20to%20kick-start%20the%20economy%20

8 https://ig.ft.com/us-election-2020/

9 https://www.theguardian.com/us-news/2016/dec/16/qa-russian-hackers-vladimir-putin-donald-trump-us-presidential-election

10 https://www.bloomberg.com/news/articles/2020-07-30/trump-floats-idea-of-delaying-u-s-presidential-election?srnd=premium-europe&sref=1LVTCemH

11 https://www.bloomberg.com/news/articles/2020-07-30/kodak-pivots-to-drugs-after-failing-at-photography-and-crypto?srnd=premium-europe&sref=1LVTCemH

12 https://www.ellenmacarthurfoundation.org/#:~:text=accelerate%20the%20transition%20to%20a%20circular%20economy%20The,economy%20that%20is%20restorative%20and%20regenerative%20by%20design.

13 https://www.ellenmacarthurfoundation.org/

14 https://mcdonough.com/cradle-to-cradle/

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