The words “Don’t fight the Fed” (Martin Zweig, “Winning on Wall Street”, 1970) have been very apt over the last week, with stock markets bouncing strongly, despite the worsening news coming out of China.
The number of Coronavirus cases in China is a concern for the global economy but there has been a response; Beijing’s airports cancelled more than 1,200 flights and schools in the Chinese capital were closed again as authorities rushed to contain a new coronavirus outbreak linked to a wholesale food market. The city reported 31 new cases on Wednesday while officials urged residents not to leave Beijing, with fears growing about a second wave of infections in China, which had largely brought its outbreak under control.
The US Federal Reserve
The Fed announced on Monday that it will start purchasing individual corporate debt instruments, in a bid to ensure liquidity for loans to the private sector, in the latest market intervention by the central bank since the coronavirus pandemic shook the country.
The Fed said it “will begin buying a broad and diversified portfolio of corporate bonds to support market liquidity and the availability of credit for large employers.” The central bank has been buying up private sector bond index funds since March, but the latest announcement means it will move to buying individual bonds if companies meet certain criteria, including on ratings and maturities. This has been one of the principle reasons that global equity markets have moved higher on the announcement.
An Englishman’s home is his castle
House prices in England rose as the market reopened in June, with some 175,000 sellers springing “back into action” following the lockdown.
According to listings site Rightmove, the average asking price in England during June was £337,884, up 1.9% from March. The June figure represented a 2.9% annual rise. However, it’s important to note that in May, Rightmove said the number of new properties coming to the market in the UK was down 90% annually, meaning it was unable to publish its usual monthly average selling price index.
The UK unemployment rate was stable in April, even as coronavirus lockdown measures hit the domestic economy, according to figures from the Office for National Statistics on Tuesday. The UK unemployment rate held steady at 3.9% in the three months to April, the ONS said. The figure beat the market consensus forecast.
The government’s furlough scheme has offered an unprecedented amount of support to the UK labour market, so we can expect to see this start to unravel in the coming months as the scheme is gradually withdrawn. A truer picture emerges from other figures included in Tuesday’s jobs report.
UK workers on company payrolls slumped by more than 600,000 between March and May, and unemployment claims soared by 1.6 million as the coronavirus lockdown hammered Britain’s labour market. The ONS said early estimates showed the number of paid employees dropped by 2.1% or 612,000 in May compared with March, while job vacancies also fell to a record low last month. Jobless claims under Universal Credit jumped 23% month-on-month in May to 2.8 million and have rocketed 126% or 1.6 million since March.
Chief Investment Officer
Luna Investment Management