Market Update

Global equity markets surged this week following robust US employment data, reinforcing our long-standing belief that the coronavirus outbreak is a transient issue, paving the way for a V-shaped global recovery.
The FTSE-100 ended the week with a 6.71% gain, marking a significant increase of nearly 30% since its low on March 23, 2020. This growth underscores the importance of maintaining a long-term perspective and resisting knee-jerk reactions during times of market volatility. Theodore Roethke's words, "deep in their roots, all flowers keep the light," serve as a reminder to find strength even in challenging times.
However, it's essential to note that the FTSE-100 is still down 14.03% since the beginning of 2020. Consequently, client portfolios are still in negative territory for the year: a typical Cautious portfolio is down 3.24%, Balanced -6.45%, and Adventurous -4.97%.
The monthly US non-farm payroll data for May was remarkably positive, defying expectations. While April saw a loss of over 20 million US jobs, predictions for May hinted at a further 7.5 million job losses. To everyone's surprise, the data revealed a gain of 2.5 million jobs, lowering the unemployment rate to 13.3%. This unexpected increase, especially in sectors like leisure and hospitality, construction, and retail, suggests that the worst is likely over. Similarly, Canada's employment data, which rose by 289,600, supports the accuracy of the US figures.
This positive trend signifies that economic reopening is having a profound impact, rapidly reabsorbing American workers into the workforce. This is not only good news for the US but also for the global economy, given the pivotal role the US economy plays worldwide. The swift recovery underscores the effectiveness of the extensive global government and central bank stimulus. Quick employment recovery reduces the risk of temporary job losses becoming permanent, preventing deep and lasting economic scars.
A minor concern lies in the classification of some workers as employed but absent. If these were categorized as 'unemployed on temporary layoff,' the reported unemployment rate would be approximately 3 percentage points higher, around 16%.
Additionally, the European Central Bank's surprise decision to increase its stimulus program by €600 billion and extend it until June 2021, coupled with continued easing of lockdown restrictions, has added to market optimism. Despite ongoing volatility, we anticipate further market recovery from the lows experienced due to the coronavirus.
In the upcoming week, we will closely monitor the two-day US Federal Reserve monetary policy meeting. Given the positive employment data, negative interest rates are unlikely to be considered. Additionally, the weekly US jobless claims data on June 11, 2020, will provide more insight into the speed of rehiring amid the ongoing US economic reopening. Other significant US data includes CPI and the University of Michigan Consumer Sentiment index.
Internationally, we will be watching monthly UK GDP for April, UK industrial and manufacturing production data, Chinese import and export data, and Chinese CPI.
While the FTSE-100 opened more subdued this morning, last week's strong performance suggests the positive momentum continues. The remarkable US employment data, coupled with easing lockdowns and extensive government and central bank stimulus, indicates potential improvements in other economic indicators, such as industrial output and retail sales. However, the return to 'normal' will likely be gradual, leading to uneven data readings. Recent trade data from China demonstrated a beat in consensus expectations but still indicated a 16.7% drop in imports compared to May 2019.
Amid these positive signals, it's crucial to remain cautious due to ongoing US/China tensions, the impending US Presidential election, and Brexit negotiations. Consequently, we expect short-term equity market volatility to persist. While equity markets are showing upward momentum, we remain vigilant, emphasizing risk management and capital preservation, considering them as crucial as investment performance and returns. Maintaining a cautious stance, we continue to hold a slightly higher than normal level of cash, including liquidity funds, aligning with your long-term interests.