Market Update – 29th May 2020.

Yesterday’s (28 May 2020) economic data was very encouraging with clear green shoots of a post-lockdown recovery.

US weekly initial jobless claims continued to trend down, coming in at 2.1m for the week ending Saturday 23 May 2020, down from 2.45m (the previous week was revised up by 8,000).

Although news headlines focused on the fact that the total number of unemployment claims over the past 10 weeks has surpassed 40m (i.e. 40m Americans have lost their jobs), it is the continuing claims data that we have been focusing on as this is far more important as it shows the number of Americans continuing to get unemployment benefits – and this fell to 21.1m for the week ending Saturday 16 May 2020, from 24.9m in the previous week (which was also revised down from 25.07m).

Although as we have previously explained, there can be some delays in reporting (for example, California only reports biweekly), taken at face value this data release indicates that nearly 4m laid-off workers were taken back on (as they are no longer continuing to claim their unemployment benefits) once the lockdown restrictions started to be eased (over a dozen US states started some form of reopening during the reporting period).

In another positive signal, US durable goods orders (these are items that are expected to last at least 3 years – for example, a car), while down again in April, they didn’t fall anywhere near as much as expected.

Additionally, the Bank of America CEO, Brian Moynihan, told CNBC yesterday that checking accounts (what we call a current account) with balances below $5,000 before the coronavirus lockdowns, now have around 30 to 40% more money in (due to less spending and the stimulus packages which gave every taxpayer, with an income up to $75k, a direct payment of $1,200 and parents $500 per child) – which is money ready and waiting to be spent as the lockdowns ease and the economy recovers.

Unfortunately, US equities gave up their gains in the final hour of trading (8-9pm UK time – which has become a recurring feature lately), thanks to escalating tensions between the US and China.

Both the Dow Jones and the S&P 500 index had been trading up around 1%, but ended the day down 0.58% and 0.21% respectively, after Donald Trump said he will hold a news conference where he will announce new US policies on China today (Friday 29 May 2020), as China approved new national security laws for Hong Kong.

Additional tariffs now appear more likely than not, given this will provide Donald Trump with the big hard hitting headlines he needs ahead of November’s US Presidential election, as a tough stance with China resonates well with American voters.

Unfortunately, this is also dominating sentiment here in the UK this morning as the FTSE-100 is currently down 70 points or 1.14%.

Investment Management Team