The speed of change has been so rapid that over one-month, news at the beginning has generally been well forgotten by the end. The start of June saw the release of the May US jobs report, which showed a huge surprise rise in employment of over two million in the month and fall in the official unemployment rate. This was 10m wide of expectations, which were for 8m more jobs lost. For perspective, a usual monthly jobs report shows a 100,000-200,000 change. The rise in employment was a significant positive surprise and suggested that US employers were adding back staff at a rapid rate, although there continued to be a high level of churn. There remains some uncertainty around the validity of the data and continuing high levels of new jobless claims suggest that there are elevated levels of redundancies ongoing. However, the positive boost from this report has since been surpassed by concerns of a resurgence in cases in Southern states and a re-imposition of some restrictions.
The UK situation appears even more opaque as the government job retention scheme continues to shield many employees that may otherwise be unemployed. With this scheme due for phase out in August, employers are likely to begin making redundancy decisions over the coming weeks to avoid any additional costs. This may begin to illustrate the true economic impact on the jobs market. The UK is expected to contract by 9% in 2020, suggesting that there will be a large number of job losses to come.
Looking forwards, Purchasing Managers Indices (PMIs) have rebounded strongly and rapidly from the lows seen in April. However, globally they remain below 50 in June, which is indicative of a continuing contraction. From such a low base, it is disappointing to think that economies and businesses are not rebounding more strongly. It will be crucial to see more positive indications at the July reading following the reopening of economies in Europe, US and Asia.
A key focus of the market is the development of the pandemic in the US. States that were spared when the virus spread rapidly in New York are now seeing exponential growth in cases. California, Florida, Texas, and Arizona, amongst others, have all seen record case numbers after a plateau during the US lockdown. This has meant that US cases are, in aggregate, on an upward trajectory once again. There is political unwillingness to re-enter a stringent lockdown and it is therefore likely that the rate of spread will continue to be elevated for some time. The economic consequences of another lockdown mean that it may only be used as a last resort. The ability of the heath system to cope with local outbreaks will be a key measure. With many businesses now able to operate, they will be keen to see how severe any negative consumer sentiment is regarding the willingness to shop in stores or use services, a concern globally.
Such a high level of uncertainty over the future and an already strong recovery from the lows in March, has meant that the equity market has been flat over the month, losing some positive momentum. Although, heightened volatility still prevails. There have been a number of 2% moves in both directions, and a nearly 6% fall on 11th June, showing that there remains a high degree of nervousness for investors. However, a growing consensus that central banks and governments are acting as a backstop for markets, and are willing to step in with support at any sign of concern, means that those with cash are comfortable allocating. Central bank support has been invaluable during this crisis, however, a broad-based belief that holders of risk assets do not bare risk will build problems for the future. Capital misallocations and asset bubbles will become more prevalent.