US equity markets rose sharply first thing yesterday – and at one point the Dow Jones was up over 400 points. This helped to lift the FTSE-100, which closed nearly 56 points higher, or almost 1%.
Unfortunately, US equities gave up this promising start after reports that a potential treatment for coronavirus had a disappointing clinical trial – and as a result, the Dow Jones ended the day up just 40 points, while the broader S&P 500 was flat. Consequently, the FTSE-100 has opened lower this morning – and is, as we write, down nearly 75 points, or 1.25%.
US equities were initially helped by the US initial jobless claims, which showed that 4.427m Americans lost their jobs in the week ending 18 April 2020 – taking the total number of US jobs lost, thanks to the coronavirus lockdowns, to over 26m.
While this looks horrendous, it is all about the direction of travel – and 4.427m was lower than the previous week’s jobless claims, which was itself revised downwards to 5.237m and is well down from the 6.867m lost jobs we saw three weeks ago.
Although US unemployment is likely to rise above 20% (which would be double the peak reached during the global financial crisis in 2008/9 and near to the levels experienced during the Great Depression in the 1930s), we need to remember that you can only close (and therefore make staff redundant) a business such as a coffee shop, restaurant or hairdressers, once.
Additionally, the coronavirus is only a transient issue and once its spread is contained, these businesses will reopen and in turn bring back those lost jobs – hence our view that the global economy will see a V-shaped recovery.
Interestingly, the Bank of England (BoE) policymaker, Gertjan Vlieghe effectively echoed this during his webcast yesterday, saying that we are experiencing the worst economic downturn in a century, but the aim of the coordinated government and BoE actions was to ensure a V-shaped recovery and as a result, there was a good chance that the UK would return to its “pre-virus trajectory once the pandemic is over”.
Consequently, we would like to repeat our previous statement that while the current economic data we are seeing is eye-wateringly bad, it isn’t really telling us anything that we didn’t already know (i.e. the global economy has hit a brick wall), but with the end of the coronavirus lockdowns coming into sight, it is best to focus on the likely duration of the economic decline rather than the depth, as once the lockdowns are lifted the global economy will quickly start to recover.
Investment Management Team