Markets have been strong this week and there is almost a sense of outrage that global equity markets have bounced so hard and fast after the brutal sell-off from 17th February to 23rd March. Over the past few days, all the usual themes continue to dominate the news wires:
• China – US tensions
• The Coronavirus
• Brexit discussions
However, what caught our eye this week were three factoids that might become longer lasting facts. According to Wikipedia, the word ‘factoid’ is most often used to describe a brief or trivial item of news. So are these factoids more than trivial?
Factoid 1: The April reading of the China Goldman Sachs Current Activity Indicator, the so-called China CAI rose to 7.8% month on month annualised.
Factoid 2: Sales of new single-family homes in the US increased by 0.6% in April.
Factoid 3: This week Jamie Dimon, CEO of JP Morgan, the world’s largest banking franchise, said that according to his firm’s base case for 2020, US banks may not need to add any further to the hefty credit provisioning they made in the first quarter.
Why are things relatively strong when only six weeks ago you could not buy a positive news headline? Well, this is not a normal recession. Governments deliberately closed down the economy and the data sank in response. As Tim Duy, one of our favourite analysts, said: “this is not a Great Depression but it is a Great Suppression.” It is axiomatic that the economy is raring to go once the lock down ends and societies can get back to work and, indeed, the lock down is coming to a close in many parts of the world.
For the three factoids to become longer lasting facts it is important to remember that a key reason the US economy has not slipped into a depression is that enhanced unemployment benefits keep pumping money into people’s pockets even with the US unemployment rate surging to 15%. However, the US economy will not have time to heal before those benefits expire, so we are hoping that policy makers do not take their cue from a strong stock market and take a more relaxed view of stimulus. This is why we are hoping Congress will deliver another round of money before the end of July and we can start to see the factoids become facts.
The spat between Trump and Twitter is interesting. Yesterday, Trump signed an executive order instructing White House officials to re-examine the 1996 law, commonly referred to as ‘Section 230’, that granted social media companies immunity from being sued for content which appeared on their platforms or for removing content. We will be watching this fight between Trump and Big Tech for any signs that it may dent the long-term outperformance of some technology stocks.
Finally, the US-China tensions keep acting as a negative backdrop to the markets and we are focused on those developments and are expecting another anti-China announcement from Trump later today.
