Market Update – 24th February 2021.

Although it has been a quiet week so far for economic data, it has been a volatile couple of days for global equity markets.

Of main interest on the economic data front has been UK employment.  Unfortunately, employment fell by 114,000 compared to an expected decline of just 30,000 by the major economists.  As a result, the unemployment rate rose to 5.1% in December from 5% in November.

However, the lack of a more marked deterioration in the UK employment market over the past year reflects the effectiveness of the government’s job retention (furlough) scheme.  In fact, HMRC figures state that 3.85m people were on furlough in December – although given the stricter lockdown restrictions introduced at the end of December, this is likely to have jumped significantly in January.

While the furlough scheme is unlikely to protect all jobs, this week’s reported jump in holiday bookings after Boris Johnson laid out high-level plans to ease our lockdowns over the coming months, clearly highlights that the furlough scheme wasn’t wastefully supporting jobs and so called ‘zombie companies’ that had broken business models, but was providing much needed support during the disruption caused by coronavirus and the associated lockdowns – and as such, confirms that we will see a rapid economic recovery once the restrictions are eventually lifted.  As an aside, shares in travel-related companies have seen big rises this week, while coronavirus stay-at-home beneficiaries such as Ocado and Kingfisher (the owner of B&Q) have sold-off.

However, front and centre of the financial markets attention this week was yesterday’s (Tuesday 23 February 2021) semi-annual testimony before Congress by Jay Powell, the Fed Chair.

Thankfully, he didn’t disappoint us as he said everything we have been saying:  Jay Powell stated that he wasn’t worried about US inflation as any rise would be transitory; and that the Fed was focused on the employment part of the central bank’s mandate.

As a result, sentiment turned on a sixpence, allowing equity markets to recover much of their earlier weakness.  For example, the US Nasdaq index cut its loss in half:  having been down over 6.25% compared to last Friday’s (19 February 2021) close before Jay Powell’s testimony, it recovered to close yesterday down less than 3% lower than Friday’s close.

Investment Management Team

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