New balls please

The role of psychology in the equity markets shouldn’t be underplayed. Surely it’s no coincidence that the first signs of Spring accompanied the start of the March rally, while yesterday’s sunny optimism in the morning session waned in afternoon deals as we Brits struggled to deal with humidity levels (OK, so weak US jobs data may have played more of a part but stick with me here…)? If my theory has any legs, which, being an optimist—a cautious optimist of course—I believe it does, just imagine what the impact of an Andy Murray victory could have when he plays his namesake Roddick in the men's semi final this afternoon. And I daren't even mention the ‘next stage’ for fear of jinxing it.

Murray’s quarter final win over Juan Carlos Ferrero was watched by 4.5 million people in the UK this week, no doubt many of them online at their desks, so it seems safe to assume that anything up to 10 million could be tuning in for this afternoon’s semi final against US player Andy Roddick. Douglas Williams, chief executive at the Centre for Economics and Business Research predicts a minimum of 8 million Brits will be watching this afternoon (not as optimistic as my guestimate, but being an economist Williams is taking into account humidity levels and the threat of rain). If we assume half of these viewers—about a tenth of the UK workforce—are ducking behind their work computer screens to slyly plug in their earphones and click on the BBC Sport web site, Williams predicts a loss of about 1.5 hour’s productivity on average, implying a £120 million cost to GDP.

“But given that the economy is pretty slack at the moment, it will be relatively easy to make most of this up,” Williams says by way of reassurance for those of you who like to count the pennies. With GDP down 2.4% in the first quarter of 2009, or roughly £8 billion by CEBR’s estimates, £120 million is a drop in the ocean. And don’t we deserve a bit of fun for once?

Anyway, as William points out, this loss to GDP as a result of a brief dip in productivity could well be refunded in terms of thirst-quenching refreshment by those mentally-exhausted viewers who are there with Murray in spirit, feeling every muscle strain, guttural grunt, and trickle of sweat.

“When England played Argentina in the soccer world cup on 7 June 2002 on a similar Friday afternoon, the England victory led to about £150 million extra being spent on food and drink (probably mainly the latter) in the pubs and clubs.” Wow, we really were thirsty. “Something similar could happen this afternoon,” Williams is predicting, “there will be fewer viewers than for the soccer, but the higher prices of drinks in 2009 could boost the number towards £100 million.”

And, dare I say it? Dare I even whisper ever so quietly into my PC that we could double, triple, hell even quadruple that number if he were to go on to be a victor this Sunday? Who cares if your lawn doesn’t get cut? On a Sunday there will be little impact to workforce productivity, the only real impact to GDP will be a positive one and champagne’s pretty pricey at the moment. I should know…mine’s already on ice.

We shall fight on the beaches
Tomorrow being the 4th of July, US investors have retired to the beaches today in celebration of a long Independence Day weekend. But this will only be the briefest of breathers from the ‘War on Global Recession,’ and a well-deserved one, I feel, particularly after yesterday’s US jobs report disappointment.

We’ve reached the mid-point in the calendar year and it’s time to take stock of how we’ve fared, reboot our energy reserves, and prepare to battle on. There will be limited beach action in the UK as thunderstorms and heavy showers are forecast for much of the weekend, but fingers crossed we’ll all be indoors watching Murray anyway.

So, by way of synopsis, here’s how we stand so far this year: macro economic conditions seem to be stabilising around the globe; equity markets have rebounded strongly—though the FTSE 100 index and Dow Jones Industrial Average may still be a tad negative year-to-date, Hong Kong’s Hang Seng has rallied hard over the past six months and the Chinese economy is being seen by many as a recovery leader; and corporate earnings downgrades appear to be roughly back at ‘normal’ levels—indeed many 2009 expectations are being revised upwards.

Not only have we watched the economic environment improve over the first half of the year, but UK equity markets have performed better than many had predicted at the end of 2008. The FTSE All Share index is just 2% lower than where it started the year, while the mid-cap index is 16% higher than it was when it opened for trade on January 2nd and while the FTSE 100 index managed gains of more than 8% over the second quarter.

The summer months are traditionally quiet in terms of trading volumes and after the developments of the last few months, I see no reason why this summer will be any different: there may be less money for a holiday, but there’s certainly more need for one.

I may be optimistic, but cautiously so. I know that any progress is going to be slow progress, and there are bound to be some hiccups in the pipeline, but here’s to a steady and controlled recovery: happy half-way point.