May 11, 2020

Fear-mongering Numbers Do Not Mean Anything

Fear-mongering Numbers Do Not Mean Anything

The US NFP number, released last Friday, was gut-wrenching and the fact is that Americans should brace themselves for more fearmongering numbers in the coming weeks and months as the unemployment situation is likely to become more worse before it gets better. The US unemployment rate has soared to 14.7% and Trump administration thinks that this number could surge beyond 20%. Steven Mnuchin’s comments were of particular importance because he believes that the unemployment rate could go as high as 25%. Having said this, the US equity markets eked out another week of gains because the US NFP data was better than the forecast, and speculators took that as an opportunity to push the markets higher.

The fact is that the NASDAQ index is already positive for this year and the S&P500 index isn’t that far off and this confirms that investors are still determined to give a free pass to any weak economic number. They are betting that the US economy is likely to face sharp recovery after this dramatic plunge in the economic numbers.

This is the reason that investors are ready to build on the gains from last week and pick up the momentum where they left. Non-believers of this rally are still beating the same drums of market pessimism and they are hoping for the markets to revisit the COVID-19 low. For them, it doesn’t make sense for the equity markets to look this bright when there will be some permanent damage to the US economy due to COVID-19, and the country’s unemployment rate is likely to surge over 20%.

Unwavering Support

Over in Asia, we do have a slew of economic numbers out of China later this week. The main theme could be that the post-lockdown recovery in China became a hostage of a global slump in demand. But any improvement in industrial production and retail sales numbers are likely to improve the risk-on optimism among investors around the globe. The People Bank of China showed its unwavering support once again. It acknowledged that the country is facing unprecedented economic challenges and it will not hesitate to resort to more powerful economic policies to counter the economic slump.

A New Slogan

Back in the UK, Boris Johnson has set out a three-stage plan to take Britain out of lockdown. Workers involved in the construction and manufacturing sector are allowed to get back to work, and a new slogan, Stay Alert, was introduced. His recent move has sparked more division in the country as the leaders in Scotland and Wales showed their anger. This is because they weren’t consulted before the prime minister made this move. Nicola Sturgeon, Scotland’s first minister,  said she was unsure of the meaning of this slogan.

 This aggravation of tension is particularly important for future conversations because Britain still has a lot of work to do with Brexit and Scotland was never on-board with the Brexit decision. For future conversations, this particular event may create more headaches for the prime minister as the question of Scotland’s independence may catch more attention.

Nonetheless, more restrictions will be lifted on Wednesday and additional people will be encouraged to carry out outdoor activities. In stage two, early June,  the UK government will look at the reopening of shops and schools. They are likely to happen in phases. The third stage is likely to take place in early July when some of the hospitality industry and public places will be allowed to reopen. This is a long road to bring life back to its normal level but the good news is that we are finally exiting the lockdown and some part of economic activity will resume.