Week ending 28th August 2020.

In what has arguably been the quietest week this year in terms of economic data, the majority of markets closed the week in positive territory, largely looking through the plethora of noise despite pockets of volatility.

The opening of the highly anticipated Jackson Hole economic symposium took place on Wednesday (26 August 2020), with it being in a virtual format for the first time in history. US Federal Reserve Bank (Fed) Chair, Jerome Powell, was a key speaker on the opening day, outlining the changes to the Fed’s policy. Powell highlighted that they would take a looser approach to the US inflation target allowing it to drift past the 2% goal after a period of stress in order to keep growth on track. In addition, the Fed took a more flexible stance on employment data, with Powell stating that it is no longer appropriate to maintain a fixed ‘full employment’ target, thus allowing more breathing space in the labour market. We also saw the Bank of England (BoE) Governor, Andrew Bailey, speak at the event on Friday. Bailey stated that despite the dramatic shock to the economy caused by the pandemic, the BoE is “not out of firepower by any means” and that the bank needs to keep enough headroom to deal with any future shocks on the horizon. With Bailey giving little indication as to short-term policy moves, the UK market remained relatively unchanged by the statement.

In arguably one of the most significant news pieces of the week politically, Japanese Prime Minister, Shinzo Abe, resigned from his position on Friday, citing his ill health as the cause. Whilst there had been suggestions that Abe had been in ill health for many months prior (due to his lack of public presence), the outlook for Japan has become even more uncertain. With Abe being the architect of modern day Japanese monetary policy, there is now a question mark over what his resignation means for the economy going forward.

Outside of economic news, on Thursday (27 August 2020) we saw Hurricane Laura make landfall in Louisiana in the US. While the exact cost of the damages has yet to be calculated, it was the worst storm to hit the state in history, with winds in excess of 150mph. It is likely going to be a long road to recovery with heavy damage to homes, businesses, agriculture and infrastructure. The latter saw vast damage caused to the regions power grid meaning that parts of the state could be without power for large parts of September. With the US Presidential election barreling down on us, President Trump’s reaction to this tragedy could be key in a state that was easily won by Trump last time around!

Despite the hurdles presented this week, key data sets released were strong. Outside of European economic confidence data for August beating expectations, the fistful of remaining data released last week came from the US. We saw Jobless claims for the week fall, GDP for Q2 revised upwards, and both new homes sales and Durable goods data smash expectations. Whilst we are not ignorant to the fact that there is an element of noise in many of the data sets released, all of these results suggest that key global economies are in better health than anticipated amidst the pandemic, and indeed the noise we saw this week. We now look towards next week’s data releases that include US, UK, European and Chinese Manufacturing PMI’s, in addition to Euro Area Inflation, and the US jobs report for August.

Jonathan Wiseman, Fund Manager