Market Update – 28th August 2020.

Markets were relatively tepid yesterday, closing the day largely mixed. We saw the first ‘virtual’ Jackson Hole symposium open yesterday, an annual event hosted by the Kansas City Federal Reserve Bank that focuses on discussing key economic events. Yesterday we heard the US Federal Reserve Bank Chair, Jerome Powell, speak at the event where he outlined a new approach to setting US monetary policy. They will allow inflation to run faster than usual and target an average inflation level of 2% over the longer term, which will not only keep interest rates lower for longer, but also means inflation will be allowed to run even after periods of market stress. This loosening of their current targets was also reflected in their stance on ‘full employment’, with them now stating that it is no longer appropriate to have a set ‘full employment’ target, as they want to allow the labour market to breathe easier. We now look towards tomorrow when the Bank of England Governor, Andrew Bailey, is set to speak.

In other news, in a conference being conducted, as I write, Japanese Prime Minister, Shinzo Abe, is resigning due to ill health. Whilst his health has been widely debated in recent weeks, as the architect of the record breaking modern day Japanese monetary policy, his resignation will likely spook foreign investors and cast a shadow of uncertainty on the Japanese markets.

Hurricane Laura made landfall in Louisiana (US) yesterday morning with winds hitting speeds in excess of 150 miles per hour. This is the strongest storm to hit the state in history, with the coastal population encouraged to leave their homes, in addition to it forcing upwards of 80% of Gulf oil production to shut. Whilst the true cost of the damage is yet to be seen, and thus what the cost to the insurance market is to be as the storm now fades, it is anticipated that damages could be in excess of $25 billion. Whilst this is yet another tragedy (amidst the current pandemic), for markets it becomes largely transitory. Other than a short term impact on sectors such as insurers and energy, in addition to a requirement for further government funding (on top of a yet to be agreed coronavirus stimulus package), these events represent short term noise for financial markets.

Economic data releases were relatively light yesterday with the majority reporting from the US. We saw US jobless claims fall on the week to just over 1m, indicating that whilst there is a lack of clarity in the US jobs market at present (due to policy artificially supporting businesses, and a low participation rate), things are improving from the pandemic lull. We also saw Q2 GDP for the US revised upwards from -32.5% to -31.7%. While this is still a historic low, one must remember that this is off the back of a ‘once in a generation event’, with signs of Q3 being back to expansionary territory already (echoing what we have said for many months, that the pandemic is transitory in nature, albeit a global tragedy).

Jonathan Wiseman, Fund Manager

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