Equity markets edged higher over the course of last week despite yet more bleak economic data. The latest of which highlighted that US payrolls fell by a record 20.2 million in April, bringing the unemployment rate up to 14.7 per cent.
Meanwhile the German Constitutional Court caused waves suggesting the ECB were violating the constitution by initiating the quantitative easing programme. Once again, the ruling serves to remind of the hurdles to moving closer to a fiscal union in the Eurozone.
With focus on the virus, some comfort continues to be taken from the transitions taking place from economic lockdowns to gradual re-openings, although experiences in Singapore and Northern Japan suggest reducing lockdown measures is not a simple process and of course reopening does not necessarily mean recovery.
It was another week of near-vertical declines in the economic data, with equity markets once again disregarding the severity of the declines and continuing their upwards momentum on the premise that the data will improve as economies reopen.
That may well be the case, but given the depth and breadth of the slump in the data, as shown by terrible manufacturing and services data over the course of the past week, a return of economies to even 80% of activity levels seen before the crisis in the next six months would be a welcome scenario.
Although unemployment in the US is rising, we will still have to wait some weeks before we get more clarity on the employment data in the UK. We did learn that over 800,000 employers have applied to furlough staff, involving around 6.3 million jobs, over 20 per cent of the UK workforce.
This cannot go on for never, then the question moves to whether there are jobs for them to return to. A slow easing of lockdown restrictions means the jobs market will take time to recover, but investment in technology could provide a productivity boost.
The Bank of England meeting made no change to policy, with interest rates held and asset purchases unchanged at £625 billion. The Bank suggested that the UK economy would shrink by 14 per cent in 2020, with GDP in the second quarter of 2020 to be 30 per cent lower than it was at the end of 2019, with a rebound in 2021, with growth of 15 per cent.
The US appears to have uniquely politicised the pandemic; maybe this is not a surprise given the character of the President, and his re-election campaign for November. The US appears to be moving towards opening up their economy rapidly with President Trump looking towards China in trying to apportion blame for the pandemic, with possible reprisals in terms of further tariffs.