It can become a bit depressing reading, let alone writing, about the negative impacts of coronavirus. Therefore, it comes as a nice change to be able to report some surprisingly positive news to emerge from the US this week. This particular item of good news was around the number of jobs recorded in non-farm payrolls in the country. Consensus market expectations according to the Financial Times had been that there would be a fall of 7.5 million in this indicator. Even optimists were predicting a drop of 1.7 million. Instead, the results showed a totally unexpected increase of 2.5 million jobs being added during May. You can quickly workout that this is a net difference of 10 million jobs between what market commentators expected to happen and what actually happened in the event. Unsurprisingly then some commentators used words such as 'mind-blowing' and 'astonishing' in their assessment of the figures.
There are some contradictory figures which make this turn of events even harder to understand. 1.9 million first-time job applicants were registered last week which disappointed some commentators who hoped that the rate of increased claimants would be slowing more rapidly than it is. Yet markets are desperately seeking for good news and seem to be taking an optimistic view of developments. Some commentators were expecting unemployment to hit rates of around 20%, not too far off the peak of the Great Depression when it hit nearly 25%, but the new job figures have pushed the rate down to 13.3% in May from 14.7% in April. There were major rises in stock markets across the globe as a result of these figures. US stock market indices have improved by almost 30% since they hit a low in late March. Other indices such as the FTSE 100 in London and Frankfurt Xetra Dax also jumped by significant amounts. In contrast government bonds, usually a source of comfort when economic news is bad, dropped in value suggesting a further move in investor confidence back towards more risky investments.
Rises in oil prices have also helped restore a degree of market sentiment. Brent crude, one major benchmark of oil prices, is now trading at over $40 per barrel. This represents an increase of 3.9% in the past week. OPEC has agreed to meet in the near future to discuss the possibility of extending production cuts. From an industry perspective, this is very necessary given the huge amount of oversupply that there has been in recent months. As these briefings have mentioned before, higher oil prices may not be good for many consumers but they are sometimes reassuring for market confidence. There is also a move in sentiment towards the US dollar which gained against the euro after falling about 4% percent in the past couple of weeks.
Of course the crisis is not yet over and other problems may emerge to throw things off course. However as economics is so linked to investor and consumer confidence it is a sign of hope that market levels are starting to recover some of the value that they have lost in the past few months. This is good news for many investors, not just those who are institutional but also for many holders of stakes in pension funds who rely on good market performance to sustain their levels of income. One swallow does not a summer make but this is a glimmer of hope that spring is emerging to hint at the promise of better days to come after a long and extended period of winter gloom.
Wayne Bartlett is an author for accountingcpd. To see his courses, click here.
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