“Today’s numbers were almost as awful as many had feared”
On the news that a record 3.3 million people filed claims for unemployment in the US last week, Principal Global Investors chief strategist Seema Shah said: “Today’s numbers were almost as awful as many had feared. While markets were already expecting this and may not react, the information is worrying. Jobless claims are already surging just a few weeks after the first wave in coronavirus cases across the United States. Businesses are already facing such significant financial difficulties as containment measures weigh heavily on economic activity, that they have had to lay-off workers.
“The further unemployment rises, the deeper the economic downturn will be and the longer it will last as productive capacity is eroded. The implications for policymakers is clear. The fiscal package as announced is a positive, but may need to be tweaked in order to provide more protection to workers and give incentives to businesses to furlough workers instead of letting them go.
“If they are able to slow the rise in jobless claims over the coming weeks, harvesting the economy’s productive potential, the US may be able to limit this downturn to just a couple of quarters and enable a rapid recovery to get underway once containment measures are eventually lifted.
“Over the next few weeks, jobless claim numbers will give us a good idea if the US can expect a V-shaped recovery, or a U-shaped recovery.”
Bank of England holds policy after emergency stimulus measures
The Bank of England has refrained from adding any further stimulus at its regular monetary policy meeting today, following two emergency rate cuts in recent weeks.
At today’s meeting of the Monetary Policy Committee, it was decided to maintain the base rate at its current 0.1 per cent – its lowest in history – and to keep additional asset purchases at £200bn.
Recent weeks have seen the Bank announce two emergency rate cuts to stem the impact of the coronavirus outbreak.
A Bank statement today said: “The MPC voted unanimously to maintain bank rate at 0.1 per cent. The committee also voted unanimously for the Bank of England to continue with the programme of £200bn of UK government bond and sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, to take the total stock of these purchases to £645bn.
“The MPC will continue to monitor the situation closely and, consistent with its remit, stands ready to respond further as necessary to guard against an unwarranted tightening in financial conditions, and support the economy.”
Analysts were widely expecting the Bank to hold off making an changes to monetary policy today.
FTSE, Europe and Asia down as stimulus bounce fades
The rally in global stocks lost momentum today as excitement over the recent wave of government stimulus packages in response to coronavirus eases.
The FTSE 100 fell 1.83 per cent to 5,585 points on opening while French, Italian, Spanish and German markets are also down in early trading.
This followed a weak overnight session in Asia, where Japan’s Topix fell 1.78 per cent.
The drops this morning come despite the passage of a $2trn businesses and workers relief package in the US yesterday and plans for additional fiscal stimulus in Germany.
“And the awful data begins”
Fiona Cincotta, market analyst at Gain Capital, said: “After two straight sessions of gains European markets are heading lower on Thursday.
“Fiscal stimulus to the tune of just under $3trn from Germany and US brought two days of blockbuster rallies. However, momentum has faded as traders question how quickly the measures can be implemented and as the reality of the economic hit starts to show through in the data.
“The job market across the globe is about to turn very ugly. Yesterday in Parliament the surge in unemployment which is expected in the UK was laid bare. Officials warned that over the past nine days almost half a million people in the UK registered for the main benefit, universal credit.
“The biggest concern for investors is the upcoming US initial jobless claims. Investors are bracing themselves for the highest number of claims in the series history, with estimates ranging from 1 million to 4 million, up from 281,000 last week. The magnitude of claims today will be an indication of how extensive the damage to the US economy is amid business closures for coronavirus. Make no mistake, this could hit risk sentiment across the globe.”
Yesterday’s TN Live Blog
FTSE follows US and Asian markets higher on $1.8trn US stimulus package