We all want a vaccine to Covid-19 to be made, but let's not become immune to the bad data. It’s very easy to be inoculated against the collapse in economic activity because we've had nothing but bad news for 6 months; what you could term the ‘new normal’. Just as we are at risk of sleepwalking into a lower level of existence, worse education outcomes for our children, persistently lower incomes and reduced social interactions against our will, it’s far too easy to watch the economic data and think it’s not so bad after all. The truth is it remains shocking and will get worse. UK debt has risen above £2 trillion, or 100.5 per cent of GDP. This need not be a problem in itself – governments in control of their own currency don’t need to ‘pay it back’ by returning to austerity and raising taxes. One in eight UK workers remains on furlough. Meanwhile 25 per cent of Spanish businesses are in a ‘technical bankruptcy’, it was reported this morning. Germany wants to furlough workers for years, which would lead to a lost generation of zombie employees working at zombie companies.
It was a soft initial claims print from the US Department of Labor – over 1.1m vs the sub-one-million number expected, which highlights the lumpy nature of the recovery now that the easy wins are behind us. But the number of continuing claims and the unemployment rate were better. The advance seasonally adjusted insured unemployment rate was 10.2 per cent for the week ending August 8th, a decrease of 0.4 percentage points from the previous week's 10.6 per cent. Continuing claims were down over 600k to 14.8m, which was a tad better than the 15m anticipated. Giving with one hand but taking away with the other, but jobless claims are still extraordinarily high.
Of course, stocks don’t really care much. The Federal Reserve has successfully killed off bear markets as comprehensively as the carrier pigeon. If we define a bear market as when the S&P 500 declines 20 per cent from its previous peak and ends when it reaches a trough and then subsequently rises 20 per cent, then the 2020 bear market was by far and away the shortest on record. The FTSE 100, which is a much better proxy for economic growth than the US markets are, has languished and is struggling to hold onto the 6,000 level this morning. Read Phil Oakley's latest column on the horde of distressed UK companies staring in the abyss. Indeed equity markets in Europe were mixed after a solid session in Asia. Wall Street was a little higher yesterday as investors continue to hold grimly to record highs.
A slew of Eurozone PMIs disappointed. Confidence in France seemed a good deal weaker than expected. The Manufacturing PMI fell under 50, indicating businesses are less confident than they were the previous month. Rising Covid cases in Europe and worries about a big second wave were cited. Germany’s survey was more positive but still fell short of expectations. PMIs may show lots more confidence, or they may not. But there is so much wrong with these diffusion indices that we should not be paying too much attention to them.
European equity indices opened higher, dropped sharply after the French miss and recovered on the more robust German figures. The euro fell on the softer-than-forecast PMIs, while sterling was close to its recent highs after putting in a strong session yesterday afternoon and overnight in Asian trade. Cable was a little softer having risen as high as 1.32550.
UK Company Announcements
| AstraZeneca (AZN) | AstraZeneca's Imfinzi (durvalumab) has been approved in Japan for the treatment of patients with extensive-stage small cell lung cancer |
| Silence Therapeutics (SLN) | Silence Therapeutics has publicly filed registration statement with the US SEC to facilitate Nasdaq listing of ADSs |
| Kingspan (KGP) | Revenue declined 8 per cent after orders for its insulation and broader building materials suffered in the wake of the pandemic. However, despite orders improving through May and June, managment decided against recommending an interim dividend. |
*For individual company trading ideas read Michael Taylor's weekly columns. This week he highlighted a bank note printer which has been through the wringer but might be set for a recovery. *
Neil Wilson is chief markets analyst at Markets.com
