Please find today’s edition of Weekly Digest attached.
Last Week
US and European markets closed higher on Friday following the release of the monthly US employment report, which showed that payroll employment rose by 2.5 million compared to an expected fall of 7.5 million. This lead to a decline in the headline unemployment rate to 13.3% (vs. 14.7% in April). Given that the weekly jobless data has averaged over 2m per week over past four weeks, taken at face value, this suggests that more than 10m people found jobs over the period. It was also notable that Canada, reporting on the same day, saw a rise in employment for the month and a U3 unemployment rate similar to the US.
The question, after this undeniably positive report, is whether this momentum will continue. If it does, those who have believed in a “V-shaped” recovery will be vindicated. Currently, the other key evidence that would support such optimism has come from the resilient consumer confidence and personal income data from the week before last, which suggest that there is a good deal of pent-up demand if a more normal functioning of the economy allows it to be expressed. For example, in the US, mortgage applications have risen to a decade high:
Brexit talks resumed last week, though Michel Barnier indicated that no material progress had been made and suggested that the draft agreement would need to be ready by October to enable ratification before the deadline. At the same time, the European Central Bank announced a further €600 billion of fresh stimulus.
COVID Update
Over the past week, the virus has continued to become entrenched in more countries. There are now 66 countries averaging more than one hundred new infections per day over seven days, up from sixty last week. 7 June saw 129,000 new infections recorded across the globe, a new record. The seven-day average is now at 115,000, up 7% week-on-week as Emerging Market infections have grown by more than enough to offset the decline in Developed Markets.
Brazil and the US, while reporting the highest number of infections per day over the past week have at least seen their weekly growth in new infections come to a halt. The most concerning growth rates come from India, Pakistan, Mexico, Iran, Bangladesh and South Africa. Iran is a particular concern – its second wave of infections appear to be swiftly growing and provides a worrying example of what may be possible elsewhere. Similarly, Sweden has seen a bounce to 970 infections/day (up 73% week on week).
The Week Ahead
Oil traded higher today after OPEC+ agreed to a one-month extension in its recent output cuts and suggested a stricter compliance approach to those who breach this. In the US, former Secretary of State Powell backed Biden for President over the weekend, saying Donald Trump’s threat of using US troops against protesters shows he has drifted away from constitution. A number of recent polls suggest that Biden now has a several point lead over Trump. I was recently in a meeting where the other Investment Manager said that Trump would definitely win – I/we are not trying to make that call and markets are also pricing in this uncertainty, although Trump’s market-perceived probability has fallen (but still pricing at a 46% chance):
With markets functioning more normally, expectations that strong companies would look to take advantage of recent dislocations, leading to an upsurge in M&A and corporate activity, have received encouragement from suggestions that AstraZeneca may be looking to tie up with Gilead. GrubHub, the food delivery firm, has also reportedly received approaches from JustEat and another European investor – in addition to recent speculated interest from Uber.