Mixed headlines have been well received by financial markets, which have had another positive week. Good news inevitably comes caveated with “caution” given the potential for a further wave of infections. Nevertheless, the easing of restrictions is proceeding well as Europe reopens and economic recovery gets underway. So far so good.
The announcement of a gradual unwinding of the Furlough scheme has again been well received by financial markets and feels like a prudent approach. The acid test of effectiveness, however, will be the eventual unemployment numbers. These will be an important indicator of the real economic damage, affecting both sentiment and recovery. The Eurozone unemployment figures have so far shown only a modest increase.
The ECB (European Central Bank) announcement on Thursday of a further €600bn of bond purchases and extended timeline to June next year was again good news. This takes total support to €1.35tn, emphasising the scale of the economic covid cost. The US Federal Reserve meets next week and the Bank of England the following week. The expectation is that similar, continuing support to be announced. While markets are pricing in future earnings (as previously referred to) much of this is effectively reliant on continuing central bank support.
For most of us, these numbers eye wateringly and almost worryingly large but they offer reassurance to markets. As one commentator remarked, “you don’t bet against the Fed’”, in other words, when the financial might of the US Federal Reserve backs the economy, take comfort.
Closer to home, the European PMI (purchasing managers’ index) reflects GDP (gross domestic product or economic activity) trends, and May figures show the economic deterioration had slowed (better than April) but that recovery had not yet properly under way. This and the ECB announcement are perhaps slightly mixed headlines but both support the feeling that we’re past the worst and should be looking confidently at a U-shaped recovery (see update of 22nd May).
I was also interested to read that UK Equity fund managers are estimated to have sold around just 1% of stocks compared to 8% in the GFC (global financial crisis). It’s reassuring that they have remained calm and share the “stay invested” mantra which has perhaps been tested this year.
Events in the US this week have attracted global attention on various levels, one of which is whether the protests or mass gatherings will increase the rate of infection. There are many political issues around these unfortunate events, presenting further challenges for the President.
In the UK very capable opposition provides different challenges for the prime minister, but again, on many fronts. Brexit has crept back onto the table with the objective of regaining independent sovereignty to control regulation and decision making while retaining economic trade links remains. This feels like a somewhat familiar deadlock and will require compromise. The transition period ends 31st December and the deadline for an extension request is 30th June which looks unlikely to be pursued.
This political reference unashamedly sets the scene for Peter Duncan in 2 weeks who will give an interesting insight into the political scene and outlook. I look forward to his joining me for the webinar.
Last week I signed off referring to the exceptionally good weekend weather forecast which has returned to normal Scottish summer. I’ve seen golfers return to the local course this week which has been a welcome step back to life as we knew it and with it, the somewhat inevitable need for Gore-Tex!
Best wishes for the weekend,
Regards
Kenny