Following last week’s sharp sell-off in US technology stocks, markets in UK and Europe have bounced back this morning. The US tech rally may falter here until further economic data confirms economic improvement and/or there is more positive news regarding coronavirus. The Pound is lower today as the talks between UK and EU resume with foreign Secretary Dominic Raab calling this week the “moment of reckoning”.
- The IHS Markit/CIPS UK Construction PMI fell to 54.6 in August of 2020 from 58.1 in July which was the highest since October of 2015. The reading came well below market forecasts of 58.5 as a lack of new work to replace completed contracts had acted as a brake on the speed of expansion. The civil engineering sector fell back into contraction and growth in the commercial and housebuilding slowed. New orders slowed, supply chain disruption persisted, job shedding eased only slightly and input price inflation increased. Finally, business expectations improved amid hopes of a boost from major infrastructure projects and resilient public sector construction spending.
- The US unemployment rate fell to 8.4 percent in August of 2020 from 10.2 percent in the previous month, below market expectations of 9.8 percent, and marking the 4th straight decline after April’s all-time high of 14.7 percent. The number of unemployed persons dropped by 2.8 million to 13.6 million, as many businesses continued to rehire employees following coronavirus lockdowns. Still, the jobless rate remains well above 3.5 percent in February, before the pandemic hit but lower than the 2008/2009 Global Financial Crisis peak of 10 percent. Official figures still may be far off the reality as many people are being classified as employed even though they are absent from work.
- The yield on the US 10-year Treasury note climbed 9.9bps to 0.720% on Friday, the biggest daily gain since May 18th, after the jobs report for August showed the unemployment rate fell to 8.4 percent from 10.2 percent in July and below market consensus of 9.8 percent. Still, nonfarm payrolls rose by 1.371 million, slowing from a 1.734 million in July. Investors await next week’s $108 billion wave of coupon-bearing debt auctions. For the week, the 10-year bond yield was barely unchanged.
- The Federal Reserve Chair Jerome Powell reiterated on Friday its pledge to maintain interest rates lower for years to support recovery from the coronavirus crisis and recession. Still, Powell told National Public Radio in an interview that today’s jobs report was a good one. Last week, the Fed unveiled a new monetary policy framework , under which it will seek an average 2% inflation rate over time and “broad-based and inclusive” gains in the jobs market. The Federal Reserve has left the target range for its federal funds rate unchanged at 0-0.25 percent on July 29th, 2020 but opened the door for further monetary easing to support the world’s largest economy through the pandemic.
- On Friday: European stocks drifted down and ended sharply lower despite recovering from early lows and staying in positive territory till about a couple of hours past noon. US stocks staged a significant recovery attempt over the course of the trading day. The major averages climbed well off their worst levels of the day but still finished the session in negative territory. Technology stocks contributed to the early sell-off on Wall Street, as traders continued to cash in on the recent strength in the sector. Asian stocks ended notably lower after Wall Street saw its biggest sell-off since June due to a steep decline in tech shares amid concerns about excessive valuations in the sector.
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