Please see below detailed economic and market news update received from the in-house research team at Brooks Macdonald yesterday afternoon.
A far stronger than expected US employment report spurs gains in equities
While Europe was on holiday, a bumper US jobs report on Friday drove risk assets higher on both sides of the Easter weekend. Survey data also beat expectations, and this was enough to allow equities to look through the pickup in global COVID-19 numbers.
The closely watched minutes from the March Federal Reserve meeting are released on Wednesday
The number of new jobs created in the US in March hit 916,000, far in excess of expectations of 660,0001. Standout areas included leisure and hospitality sectors, which are both reopening after being the hardest hit areas from the curbs on activity. The broadest measure of US unemployment, U-6, which includes not only the unemployed but those that are underemployed or discouraged from the workforce, fell but remains in excess of 10%2. For context, this measure was at 6.9% in January 20203 before the pandemic hit and still points to a sizeable gap until the US economy returns to ‘full’ employment. This elevated level of broad unemployment is often cited by US Federal Reserve (Fed) Chair Powell as a sign of the economic output gap that needs to be filled before inflationary pressures could become sustained.
Since the Fed meeting in March, we have seen the market price in additional rate hikes as the vaccine rollout continues amidst the aforementioned stronger data. The Fed’s last statement said relatively little about how the bank would respond should benchmark Treasury yields continue to rise. As a result, this will be keenly watched for in the minutes released on Wednesday. The disconnect between what the market believes will occur and Fed guidance is widening by the day, so any sign that they will take concrete action will be important for the central bank to remain in the driving seat. This week also sees the European Central Bank minutes released on Thursday, where investors will be looking for further guidance on the pace of quantitative easing purchases over the next few months.
Third COVID-19 wave concerns continue in Europe as France enters lockdown
The counter to the data optimism is the third wave of the coronavirus pandemic which has caused Europe to move further towards lockdowns, with France beginning its lockdown over the weekend. This will remain a hot topic this week as the complicated interplay of vaccine rollouts and rising cases continues to muddy the short-term economic outlook.
Although the UK has been successful in its vaccine rollout so far, it is important for Europe and the rest of the world to achieve mass-vaccination as well. We will continue to publish relevant content as the lockdown rules continue to be relaxed.