Market Update – 19th May 2020.

A week may be a long time in politics, but it is an eternity for equity markets.

Reports yesterday (18 May 2020) that the US biotechnology company, Moderna, had promising results on a coronavirus vaccine set equities alight:  the FTSE-100 ended yesterday up nearly 250 points, or 4.29%, while on Wall Street, the Dow Jones jumped just over 900 points, or 3.85%, while the broader S&P 500 index climbed 3.15% – which more than reversed all of last week’s losses.

Although Moderna’s vaccine news is not a complete game changer due to its small sample size (phase 1 trial involved just 45 people), it does highlight how hard and quickly the pharmaceutical industry is working and that a vaccine is probably not too far away – and of course, a vaccine will speed up the economic recovery.

Unfortunately, the FTSE-100 is trading around 0.5% lower this morning:  although today’s UK employment data saw the headline unemployment number fall slightly to 3.9% in the three months to the end of March as there was a 210,000 increase in the number of people employed, the reading only captured 9 days of the lockdown.

The benefit claims data provides a better indication (albeit only slightly) of the current economic deterioration:  claims for universal credit rose by a record 856,000 in April to more than 2m.  However, this data release doesn’t necessary reflect a jump in unemployment as the government changed the benefits system, due to the coronavirus outbreak, to allow workers to claim if their income had dropped due to the virus.

While it is obvious that the government furlough scheme has prevented unemployment from jumping, unfortunately it is highly likely that we will see unemployment start to rise during Q2 as the scheme begins to wind down.

Investment Management Team