Market Update – 7th August 2020.

While UK equities fell yesterday following the BoE’s monetary policy meeting (please see here) coupled with news that the commodity trader and miner, Glencore, was the latest company to announce it was cutting its dividend (which hit all of the miners – a sector that makes up around 10% of the FTSE-100), US equity markets closed higher last night following economic data which showed that fewer Americans filed for jobless benefits.  The Dow Jones ended the day up just over 185 points, or 0.68%, while the S&P 500 closed 0.64% higher.

Given US initial jobless claims had shown an increase in the past two weekly readings following a resurgence in the coronavirus in many parts of America, there was an obvious worry that the US economic recovery could be starting to falter.

Consequently, it was very pleasing (and a relief) to see a big tick down in both the US initial and continuing jobless claims:  initial claims fell 249,000 to 1.186m, while continuing claims dipped 844,000 to 16.107m.

Furthermore, claims in the virus hot spots such as California, Arizona and Florida all came down (California -44,941; Arizona -2,378; and Florida -17,514).

While this data reading is very welcome and provides evidence that the US economic recovery hasn’t stalled, it is also important not to get overly excited as just over 16m Americans are still unemployed – hence why politicians in Washington need to stop playing brinkmanship at the expense of hard-hit American workers and agree a new US fiscal stimulus package.

Interestingly, Donald Trump tweeted that he will sign an Executive Order if Congress fail to agree a new stimulus package which will extend the current enhanced unemployment benefits, as well as giving a payroll tax cut and provide eviction protection.  Although an Executive Order is likely to prompt a legal challenge by the Democrats, it may help his popularity rating ahead of the US Presidential elections in November, less than three months away!

Later today, we get the monthly US non-farm payroll data, unemployment rate, average hourly earnings and the participation rate – unfortunately, given how the coronavirus has impacted the different states in the US, it has made forecasting estimates a nightmare, so there is potential for further equity market volatility ahead of the weekend.

Investment Management