Yesterday’s (21 May 2020) US initial jobless claims data came in at 2.44m for the week ending Saturday 16 May 2020. As last week’s initial claims figure was revised down by 294,000 from 2.98m to 2.69m due to a clerical error by the state of Connecticut, this now means that just over 38.6m unemployment claims have been filed in the past 10 weeks.
As we explained last week (please see here), given that the US economy is slowly starting to reopen, continuing claims data (the number of Americans getting benefits for unemployment) is becoming more important to us than the initial claims data – as we look for signs that Americans are being re-employed.
While the headline continuing claims number was disappointing, as it increased to 25.07m from a revised 22.55m for the week ending Saturday 9 May 2020, it should be noted that California only provides its data biweekly – and the state’s data showed a 736,621 increase.
Additionally, looking at the individual states shows us that the majority actually reported a decline in continuing claims – which is a sign that the easing of the lockdown restrictions is thankfully starting to bring people back into the workforce. This is why we have argued that it is best to focus on the likely duration of the economic decline rather than the depth, as a sharp and painful recession is all but guaranteed – and if people are going back to work then the downturn should be short, with a sharp acceleration on the other side of this horrible coronavirus outbreak (i.e. a V-shaped economic recovery).
Unfortunately, this data was overlooked as US tensions with China over Hong Kong, Huawei and Taiwan was front and centre of attention after the two countries exchanged tit-for-tat threats.
Donald Trump accused his Chinese counterpart, Xi Jinping, of arranging a “disinformation and propaganda attack on the United States” and claimed that China is “desperate to have Sleepy Joe Biden win the presidential race so they can continue to rip-off the United States”. Additionally, the US Senate passed legislation that could stop Chinese companies from being listed on any of the US stock exchanges and announced that it had agreed to sell 18 torpedoes to Taiwan.
Consequently, China responded by warning that it will safeguard its sovereignty, security and interests, and threatened countermeasures.
The US Presidential election is less than six months away, in November, and we have learnt from the last four years that Donald Trump’s get-tough rhetoric resonates with American voters angry about Chinese trade and now the coronavirus outbreak – which suggests that he will make his tough-on-China stance an important element of his re-election campaign, which unfortunately, could create some uncertainties and slow the global economic recovery.
Additionally, China’s annual National People’s Congress (NPC) opened today which has further increased tensions. New national security laws on Hong Kong will be voted on at the end of the NPC on 28 May 2020 – and the law could reduce the chances of Hong Kong being judged as sufficiently autonomous under the US Human Rights and Democracy Act, meaning that Hong Kong could be subject to the same tariff regime as China, not to mention it is likely to lead to renewed protests in Hong Kong. Unsurprisingly, Hong Kong’s Heng Seng index dropped 5.56% overnight.
Economically, news so far out of the National People’s Congress has been underwhelming, as China dropped its economic growth target.
Given all this uncertainty and with a long weekend ahead for both the UK and US, unsurprisingly, the FTSE-100 which ended yesterday down 51.91 points or 0.86%, is as we write, down another 100 points (1.66%) this morning.
Investment Management Team