Last week saw positive news emerging from the US as the country experienced a better-than-expected July employment report with nearly 1.8 million jobs added – well above the 1.5 million estimate. The unemployment rate also continued to slide, falling to 10.2% in July from 11.1% the month before, again below the consensus expectation of 10.6%.
Despite this, only half of the jobs lost in the US this year have been restored, whilst Congress remains in a stalemate over additional fiscal stimulus. Treasury Secretary Steven Mnuchin was unable to reach a deal with House Speaker Nancy Pelosi and Senate Democratic leader Chuck Schumer on Friday, leading to President Trump announcing four executive actions on Saturday to break the impasse, including a temporary payroll tax deferral for some workers and expanded unemployment benefits.
Democrats and Republicans remain trillions of dollars apart on key issues however, and the legality of the President’s actions in bypassing Congress have been called into question. Tensions between the US and China remain elevated, as the Trump administration unveiled a cascade of actions against Beijing, including sanctions against various Chinese and Hong Kong officials.
Nevertheless, Coronavirus cases and deaths in the US have started to trend downwards, with moving average measures of new cases falling since late July and those of fatalities since last week. New cases in the UK have continued to trend very gently upwards but this remains explained entirely by additional testing and other quirks. Deaths remain very low, with 8 recorded on Sunday 9th August.
During the week, the Bank of England kept interest rates anchored at 0.1% and sounded a note of cautious optimism on the country’s economic prognosis in light of recent data. The Bank believes the UK suffered a shallower lockdown recession than initially thought and that recovery is now underway after businesses reopened and shoppers began to spend again. Additionally, the ‘eat out to help out’ scheme has started well, as the chart below shows, the signs are positive:
Concern remains over the winding down of the Government’s furlough scheme in October which still protects millions of jobs. It is feared that its eventual end could still result in severe lay-offs as companies scramble to save money.
Despite higher-frequency indicators showing signs of a slowing recovery, equity markets moved strongly upwards again, leaning on the positive US jobs data for support. The Pound weakened a little versus major currencies, boosting overseas equities’ returns, but despite this the FTSE 250 performed well, posting a 4.2% gain during the week. Japanese equities were close behind, rising by 3.7% and the US slightly further back with 3.1%.
Emerging Market and Asian equities were weaker on a relative basis, with Latin American stock markets falling by 2.35%, mainly driven by weaker currencies.
Safe haven fixed income markets were generally shunned, with UK Gilts falling by 0.6% and Index Linked Gilts by 1.32% but precious metals again rose; silver by 14.4% and gold by 2.7%. Mining equities took a breather however, not participating fully in the underlying metals’ price gains.
While there are signs of a re-emergence of the virus, we think this may only serve to potentially slow rather than de-rail the recovery. Of the increased number of new cases, signs point to these being biased towards a younger demographic which is one of the reasons for deaths remaining low compared to peaks seen earlier in the year. We remain watchful of all incoming data but in the absence of the return of full-scale lockdowns, we are cautiously optimistic.
Market views by Ollie Stone – Head of Portfolio Management and Fairstone Private Wealth Ltd (10th August 2020)