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US payrolls in focus, as European stocks tread water

US markets have continued to look on the bright side of life this week, posting their fourth successive daily rise after weekly jobless claims rose by 1.18m, a much lower number than the 1.4m expected, with yet another record high for the Nasdaq.

More encouragingly continuing claims also fell to their lowest levels since 10 April at 16.1m, and increasing optimism that despite the recent tightening of coronavirus restrictions across the US, that people were still able to return to the work force.

The big question here is there's been a lag in the wake of infection rate spikes and new lock downs, and we won’t know that for another two weeks, while the end of July brought about the end of the $600 a week extra unemployment benefit, that both Republicans and Democrats are currently bickering about renewing, which brings us to today’s US payrolls report for July.

Before that, the latest China trade numbers for July showed that economic activity in the Chinese economy painted a rather mixed outlook. Imports showed a decline of 1.4% in US dollar terms, despite demand for industrial raw materials remaining strong. This suggests that while Chinese industry appears to be back to normal, Chinese consumers appear much more cautious with internal demand remaining weak. Exports were more resilient rising 7.2% largely as a result of continued demand for medical PPE.

Asia markets weren’t able to follow the lead of US markets largely down to concern about rising tension between the US and China after President Trump signed an executive order banning WeChat and TikTok as the US President sought to ramp up the pressure on Beijing as it seeks to widen its global influence by way of technology.

Markets here in Europe have had an up and down week, though could still finish the week higher, if today’s July US payrolls report is able to match some of the optimism from yesterday’s jobless claims numbers.   

Today’s equity market session has started modestly higher after the latest German trade numbers showed a decent recovery in both imports and exports for June, with rises of 7% and 14.9% respectively, while industrial output hit a record high of 8.9%, though we haven’t quite reversed the record -17.9% drop seen in April.   

After the shock of the initial lockdown in March and April which saw the loss of over 20m jobs the US labour market has begun a long walk back with 7.5m jobs coming back in May and June. This rebound was mainly down to furloughed workers returning to the workforce, helping pull the unemployment rate down from 14.7% to 11.1%.

Today’s July non-farm payrolls report is expected to see another 1.5m people return to the labour force, in the process pulling the unemployment rate down to 10.6%. While this is welcome news, these job gains won’t reflect the events of the last two weeks, where we’ve seen a host of US states re-impose lockdown measures. This week’s ADP report reflected some of the difficulties in keeping track of the ebb and flow of the US labour market as it showed gains of 167k, against an expectation of 1.2m. Offsetting this was a huge upward revision of almost 2m to the June numbers, citing the difficulties involved in plotting the idiosyncrasies of this unique once in a lifetime crisis.

With that in mind, while the consensus is for 1.5m jobs to be added the numbers could easily swing up to 5m in either direction, not to mention the likelihood of a big revision to the June numbers from the current 4.8m. The employment picture is also likely to become much more uncertain as we head into the autumn and the US presidential election, as US companies exercise caution ahead of what is likely to be a politically divisive campaign, as well as the prospect of a second wave of coronavirus infections as the weather gets colder.   

On the earnings front Standard Life Aberdeen’s latest H1 numbers came in better than expected with adjusted first half profit before tax coming in at £195m, better than the £179m consensus, but still well below last year’s £280m. Impairment charges of just over £1bn saw this number slide to a loss of £498m, though there was some add back due to disposals of £651m. A 13% drop in fee revenues also accounted for the slide in profits, while assets under management fell back to £511.8bn from £544.6bn at the end of last year. The dividend was maintained at 7.3p per share.  

The UK’s biggest fund shop, Hargreaves Lansdown latest full year numbers painted a positive picture for the business, in spite of the recent stock market turmoil, with net new business inflows rising 5% to £7.7bn, while assets under management also rose 5% to £104bn. Revenues also rose sharply, to £550.9m a rise of 15%. Profits before tax increased 24% to £378.3m while the full year dividend was raised to 54.9p, a rise of 31%. All in all, these results represent a decent performance, however there are clouds with the prospect of a lawsuit from Woodford Equity Income fund investors who claimed that Hargreaves should have known about the problems the fund was facing, given its prominence in the company’s Wealth 50 list.   

Online property portal Rightmove also reported its latest first half numbers and the impact the UK lockdown and suspension of the housing market has had on its revenues. A 34% fall to £94.8m, and a 43% drop in operating profits to £61.7m has been the extent of the damage so far, however the change to stamp duty rules and the reopening of the economy has seen strong demand for both sale and rental properties since those restrictions were lifted, offering hope for a decent second half recovery.

It is quite possible that as a result of recent events and the ability of people to work remotely without too much disruption, that the recent lockdown has prompted a desire for people to move further away from the main population centres to areas which have less population density, but good broadband connectivity. This trend does appear to be reflected in some of the search criteria, however any slowdown in the recent recovery, as we head into year end, could hinder activity between now and the end of March when the stamp duty holiday expires. It is this concern that appears to be tempering optimism about the outlook looking forward.

Rolls-Royce shares have dropped sharply after it was reported that activist investor ValuAct sold its entire stake in the business earlier this year.

The US dollar looks set for another disappointing week, its seventh successive weekly decline, sliding to fresh two-year lows on Wednesday, as the relative attractions of the greenback diminish further on the back of falling yields. Gold prices have this week continued to benefit from this dilution in the attraction of the US dollar hitting record highs on a daily basis all of this week.

The pound has had a mixed week, up against the US dollar, but less good against the euro, despite yesterday’s Bank of England tweaked outlook for the UK economy. While the prospect of negative rates may well be further away than it was in terms of how the MPC views their efficacy, the risk remains that further stimulus is likely to be needed as we head into the second half of the year.

US markets look set to open lower, as we look towards today’s July jobs report, in the wake of the weakness seen in Asia markets.

Uber’s latest Q2 results saw revenues decline 29% to $2.18bn, as bookings declined by 73% due to the coronavirus pandemic. On the plus side food delivery saw bookings rise by 113% however in terms of size the food booking business is much smaller in comparison. The company’s losses narrowed to $1.18bn, helped in no small part by the company laying off about 14% off its workforce.

Despite these setbacks the company’s ambition remains undimmed, paying an undisclosed amount to acquire Autocab, a UK taxi software business.


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