US data was again the focus of global equity markets yesterday with the weekly US jobless claims numbers. Unfortunately, claims surged again last week by 5.2m (albeit slightly below the consensus of 5.5m), which takes the number of US jobs lost in the past four weeks to 22m and an unemployment rate of over 15%!
While these numbers are massive, they will start to drop noticeably in the next week or two, as we breach the 20% unemployment mark (or 30m people), simply because the unemployment rate is unlikely to go significantly higher, as those that have, and will, lose their jobs tend to be those with a high risk of layoff, in areas such as retail, restaurants and hairdressing.
Additionally, as we have previously said, this is not a normal downturn as we know that most of these job losses should be temporary due to the fact that the coronavirus outbreak is a transient issue. As a result, when we all start consuming again (i.e. we go back out to the shops; eat out in restaurants; and go on holiday), we will undoubtedly see record job gains!
This morning we have had Chinese Q1 GDP data. While the 6.8% year-on-year decline paints a bleak picture, it is backward-looking, as China is starting to return to normal, with factories, shops and restaurants all now resuming business, so we can comfortably say that we will see better data in the weeks and months ahead.
However, while all this data is headline grabbing, in reality it isn’t particularly useful, as no matter how negative the data appears, it is safe to say that we can all see the evidence of the economic damage that is being inflicted as the global economy has effectively hit a brick wall thanks to the coronavirus lockdown and containment measures – hence our view that the global downturn has already been priced into global equity prices.
Additionally, given the coordinated stimulus measures that governments and central banks have provided in order to mitigate the impact on unemployment and consumption, as we have previously said, the most important question is when will these coronavirus lockdowns be lifted, allowing the global economy to start recovering, and therefore what will the economic loss be between now and the recovery?
Although these are difficult and uncertain times, we believe that there is one thing that is certain: and that is, this is not like a normal economic downturn simply because the coronavirus outbreak is a transient issue – and this is clearly demonstrated in some of the recent Chinese data, such as last month’s PMI which surged back into expansion territory (please see here); or this week’s import/export data (please see here), which highlights both how quickly an economy can recover once lockdowns are relaxed.
Furthermore, the cosmetics company, L’Oréal, yesterday said that China was quickly bouncing back, as sales in the country turned positive in March and are on track for a gain of 5% to 10% this month – hence why we have been saying that it is best to focus on the likely duration of the economic decline, rather than the depth, as we believe that the global economy will see a V-shaped economic hit and recovery.
And with that in mind, global equity markets opened up sharply higher this morning after Boeing said it will resume plane production next week and Donald Trump said he will map out a plan to reopen the US economy. The FTSE-100 is, as we write, up 2.5% or 140 points at 5,769.
Investment Management Team