Markets swung from negativity to positivity yesterday

  • 21st August 2020

Viral new cases improve in the US but worsen in Europe while the overall journey towards a vaccine continues with good pace.

What has happened

Markets swung from negativity to positivity yesterday as vaccine news wrestled with poorer than expected economic data.

Latest on the virus

Several European countries have seen their highest level of virus cases in the last 2 or 3 months as the uptick of cases continues. Weekly cases in the UK have risen above 8,000 for the first time since June but countries such as France and Spain are seeing even higher figures. Croatia and Austria also moved onto the UK quarantine list after their weekly cases per 100,000 of population moved above the government’s guidance line. Meanwhile Chancellor Merkel and President Macron have guided that they oppose nationwide shutdowns but want to consider continent wide strategies to avoid deepening economic disruption from the virus. Pfizer announced continued success in clinical trials for its vaccine and said that they were on track for regulatory review over the coming months. This news specifically helped buoy sentiment that had been impacted by the US weekly jobless numbers.

US unemployment disappoints

Weekly initial jobless claims have been brought into the spotlight during the COVID-19 crisis as they provide a higher frequency dataset than the monthly non-farm payroll report. In July there were some concerns that the weekly jobless claims had started to level off, suggesting that either the recovery had slowed or that lockdown had scarred the economy more than the market had expected. In recent weeks that narrative has changed with the figures improving so a miss in yesterday’s numbers raises uncertainty about how quickly the US economy is repairing itself. The better news was the continuing claims figures which moved below 15m but this is still a substantial figure of course and more than twice the peak during the financial crisis in 2009.

What does Brooks Macdonald think

Rangebound August markets have been supported by fairly rangebound news. Viral new cases improve in the US but worsen in Europe while the overall journey towards a vaccine continues with good pace. US-China tensions have stopped short of a tearing up of the Phase One trade deal but incremental tit-for-tats against individuals and companies remains a key theme. Economic data also paints a varied picture of regional improvements whilst the broad trend still points to a widespread pickup from a low base. In this context equities would be excused from being rather lacklustre but we believe the repeated testing of all-time highs in the US represents, as much as anything else, investors looking to generate some return where most traditional safe assets provide little.

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