Tag Archives: Charles Porter

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Morning Brief – Bonus Season

Bonus Season

 

Yesterday afternoon’s charismatic speech by Chancellor Rishi Sunak in the House of Commons was peppered with bellows of “hear hear” from PM Johnson from the front bench. The Chancellor had built up a bit of a reputation for under promising and over delivering in the past few months of his trial-by-fire ministerial appointment. Yesterday, however, saw roughly what the market was anticipating in terms of the fiscal support pledged from the dispatch box. The tone from the Chancellor changed the gear of the fiscal response from emergency support to durable progress and recovery, paving the way for a normalisation in employment conditions, consumer spending and investment. At the core of his mini-budget/fiscal pathway was a plan to retain jobs. Straight from the Ben E. King school of speech writing, the Chancellor told the United Kingdom yesterday: If you stick by your workers, we will stand by you.

 

 

The Policies/Bean Counting:

 

The chancellor yesterday continued with the planned phasing out of the job retention scheme and instead came up with the job retention bonus. The scheme will offer employers £1,000 for every worker brought back from the furlough scheme until the end of January. With just shy of 9.4 million furloughed workers in the United Kingdom, the pledge could, unsurprisingly, dent the coffers by as much as £9.4bn. Far from cheap but only a fraction of the cost of continuing the scheme for another few months.

 

The will-he won’t-he of yesterday’s announcements surrounded VAT cuts. There were rumours that were subsequently downplayed of a cut to VAT with commentators wondering, would it be in specific sectors, across the board, by how much and for how long. In the end, the Chancellor has chosen to cut value added tax for hospitality and tourism from 20% to 5%. The projected cost for this scheme is £4.1bn. Mind out those who spent their £32 on drinks last weekend: the cut excludes booze!

 

Another big hitter in Mr Sunak’s arsenal yesterday was a cut in stamp duty. The measure should leave the tax bill for moving home £4,500 less on average across the UK until April 2021. The bean counting is becoming increasingly tricky here as you have to consider how the impact of the stamp duty reduction will change the volume of housing transactions, but the projection is for a £3.8b loss to government revenue.

 

The additional measures introduced were: a £500m eat out to help out scheme; a £2.1bn Kickstart scheme, Traineeship bonuses; £3.1b in green economy funding; and 1.6bn for work coaching. The final bill came in at an estimated £30bn. Take a look at the list above. These are all schemes designed to influence the decisions and activity of economic actors. The schemes above frequently encourage consumer spending by promising to replace it with government spending. The measures appear great for an economy emerging from a pandemic, but they do assume that a stable path towards social and economic normalisation is possible. If a second spike in infections and a toughening of lockdown restrictions is reintroduced then the measures could prove to be on the shallow side. The Chancellor therefore is not out of the woods yet.

 

 

Market Reaction:

 

The market initially responded warmly to the Chancellor’s statement following a shaky start to the European session. The speech didn’t secure lasting support for the GB Pound that concluded yesterday’s session flat on a trade weighted basis. The decision not to extend the furlough scheme past the current deadline of October reinforced a positive sentiment in the UK’s ability to cope with the virus without extraordinary measures. However, the Pound will be increasingly vulnerable if there is a second spike in infections that jeopardise the degree of economic and social normalisation we have seen in the past few weeks. The Pound tested and failed to break an important resistance level at 1.26 versus the US Dollar yesterday. Encouragingly, versus the Euro, the Pound has managed to break through the bearish trend resistance it has been subject to since late April’s peak in GBPEUR. Positive sentiment has pushed the Pound higher this morning and, if Brexit and Pandemic developments are willing, Sterling could be set to retest mid-June’s highs.

 

 

 

Discussion and Analysis by Charles Porter

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Morning Brief – Another Round?

Another Round?

 

As ‘Super Saturday’ subsided into crapulent Sunday, the UK’s hospitality industry received a welcome boost. Opening their doors for the first time in more than 100 days, pubs, restaurants, hairdressers and more welcomed customers back (from 1+ metres away). Of those of you that did frequent the pub or eat out in a restaurant I ask you: did you enjoy it and, critically, will you be doing it again soon?

 

Over in the United States the President of the Federal Reserve Bank of Atlanta, Raphael Bostic, has been voicing his concern over a flatlining in the economic recovery in the United States. He observes that high frequency data is pointing to a ‘levelling off’ of economic activity following several weeks of improving conditions. High frequency data includes information from card transactions, transport usage and electricity consumption to name but a few. The picture that is emerging from this data is a gloomier one than that of a few weeks ago.

 

The idea is that a fresh pick up in economic activity as a result of the lifting of certain parts of the lockdown has been short lived. Despite underlying social policy remaining consistent over the past few weeks, the public has been less willing to go out and to spend. Of course, the comments from the Fed President pertain to the US economy. The United States has recently seen a fresh high in the rate of infection and the virus spread even quicker than before the lockdown, therefore the cases of the UK and US are far apart. However, it does open the case for a W pattern to post-lockdown economic recovery.

 

In the UK, several pubs have been forced to close their doors once again as some of the patrons that have visited over the weekend have now tested positive for coronavirus. Of the 50,000 odd pubs in the United Kingdom, this is to be expected and would be a calculated risk in the opening of these establishments. Really, the rapid closure of these pubs is testament to the NHS Test and Trace scheme to isolate pockets of infection. However, the materialisation of the risk of infection from these establishments could influence consumers to change their mobility and spending patterns for the coming weekend.

 

The normalisation of business is critical to economic prosperity particularly in the United States. Of the 22.5m jobs lost throughout the course of the pandemic, 7.5 million have been recovered, boasting a faster than anticipated recovery in the labour market. With the policies in place for the unemployed in the United States set to expire at the end of the month, organic economic activity is critical if the US is to sustain the more upbeat risk sentiment that markets have enjoyed in recent weeks. If the data sours then global risk sentiment will likely face a setback prompting sell-offs in emerging markets and in currencies with a higher risk profile whilst prompting capital inflows to safehavens.

 

 

Discussion and Analysis by Charles Porter

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Morning Brief – Another Round?

Another Round?

 

One of the more noble of public surveys carried out recently came from the Centre for Economics and Business Research (CEBR). They asked UK adults whether they will be heading to the pub in the near future as they open their doors to the public for the first time in 103 days (not that I’ve been counting). Now of course some restaurants will be opening this weekend and arguably the economic impact of consumer spending in such venues will be larger and more important for the UK economy. However, the results are not half as fun to discuss nor are they available in such amusing detail thanks to a special report from beverage leviathan AB InBev and the CEBR. The answers to the survey? Well, more than one in three of them was a firm yes.

 

The CEBR predicts that around 35% of adults plan to frequent such hospitality venues over the next week. Some 6.5m of us are expected to make a trip to the pub this coming weekend, almost a 50% increase versus a normal July weekend. We’re also expected to reach a little deeper into our pockets and I suppose livers with analysts predicting a 32% increase in spending by those propping up the bar (or not!), equivalent to an extra 2.1 pints or 1.9 glasses of wine per person for those attending. I admit, even having looked at the analysis in more detail, the projections seem a little too accurate to be credible. However, the headline is that the United Kingdom is expected to spend a whopping £210 million on a combination of lager, wine, cheese and onion crisps and pork scratchings.

 

Here’s the fun bit – £210m across 6.5m people. That’s more than £32 a head. Having conducted my own research I can tell you that in London you’ll struggle to get 6 pints of fairly average lager for this spend. Still, quite a hefty consumption over one weekend if you ask me. Given that this is of course a nation-wide survey, on average that £32 is likely to buy you almost 9 pints if you round up across the UK. Supposedly, Shropshire is the cheapest county on average for a pint at a penny-saving £3.37 on average. That’s close to ten pints or, a fairly serious hangover; try that maths after spending £32! The reopening of the hospitality industry and spending figures like this do offer a serious contribution to economic output. The forecast increases in consumer spending across the board should have a tangible impact upon the UK economy.

 

The easing of lockdown restrictions that will take place this weekend will increase the risk of a second spike in infections. With the virus still considered to be in general transmission amongst the community the easing of the lockdown this weekend is targeted in order to minimise pandemic risk whilst minimising further economic underperformance. The partial economic reopening this weekend comes as the accommodation and food services industry is down 40.9% on a three-month rolling basis. The success of the measures introduced this weekend to avoid a second spike in infections whilst encouraging economic activity will be critical in determining the short-term value of the Pound.

 

 

 

Discussion and Analysis by Charles Porter

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Morning Brief – Where do we go now?

Where do we go now?

 

Sterling has weighed heavy into the start of this weak. Economic data has been revised down for the first quarter of 2020 to -2.2% from a figure of -2.0% previously estimated. The reason for the revision was a deterioration in the current account showing that ahead of the pandemic the UK imported a higher value of goods than previously thought versus what it exported. With a rapidly increasing budget deficit the data revision reinforced concerns over a ‘twin deficit’ problem in the UK economy, a situation that markets are particularly wary of.

 

Piling on top of this hard data were statistics on mortgage approvals. The reopening of the housing market in May led analysts to settle on a consensus forecasts of 25,000 mortgage approvals for May, up from 15,600 for April. The data did not show such a dramatic improvement and instead mortgages approved last month fell to a record low of 9,300. The data portrayed an image of an economy suffering from uncertainty with investment decisions potentially being put off. The data combined to undermine GBP sentiment pushing cable (GBPUSD) to one-month lows and GBPEUR to three-month lows against a strong Euro.

 

The latest round of Brexit talks got underway yesterday with the EU and the UK maintaining their language of commitment to making progress and securing a deal. However, the lack of specificity and detail provided a further reason for underwhelming GBP demand in the market. Behind the scenes there is a lot of optimism for how a deal could emerge. However, progress is still frustrated in high-level talks by the same old stumbling blocks. Johnson’s plea to the EU last month to get the ball rolling has encouraged comments of compromise on the level playing field and the role of the European Court in enforcing the deal. However, there is still no evidence of progress at the level of chief negotiators or their deputies.

 

Tomorrow, Germany takes over the six-month rotating presidency of the Council of the European Union. In the European Union decisions are primarily made between two bodies: the European Commission and the Council of the European Union. The former consists (probably) of the individuals that Farage & co. labelled as unelected bureaucrats during the referendum campaign. The Commission holds a monopoly on the right of proposal – it has the right to suggest law for the ratification and debate of the Council of the European Union and Parliament (don’t worry about the Parliament). The Council of the European Union in turn negotiates and adopts EU laws, coordinates EU policy, develops foreign and security policy, concludes intra-EU and external agreements, and adopts the EU fiscal framework. Consisting of the government ministers of each EU nation it is responsible for the lion’s share and meaty aspects of the bloc’s coordination.

 

With Germany at the helm, the focus for the next six months is going to be the European Recovery Fund and Brexit. The rotating presidency affords some discretion in the agenda for discussion and will also give Germany’s opinion, as if it didn’t have it already, comparable influence within the Council. Angela Merkel, as Chancellor of a nation that exports tens of billions of Pounds worth of goods and services to the UK each year, is amenable to a Brexit deal. The hope for UK negotiators is that the ministers within the Council will use this presidency to secure accord and subsequently ratification of a Brexit deal ahead of the 31st December deadline. Although the short term may look bleak for Sterling, the Pound isn’t out yet. The market’s severe net short positioning against the Pound could soon be unwound if evidence of Brexit progress is made paving the way for sharp and persistent gains.

 

 

 

Discussion and Analysis by Charles Porter

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Morning Brief – Perishing Pound?

Perishing Pound?

 

The brakes are on in the United States as coronavirus infection rates climb rapidly. Without any credible advances in therapeutics, the development of a vaccine, or a sufficient proportion of the population infected to create a herd immunity, we know that if life goes back to the way it was then we could risk casting ourselves back to the infection and death rates observed at the height of the pandemic. Whilst populations therefore might be eager to get back to life as it was, markets are sometimes cautious when they feel health policy oversteps the readiness of a population to accommodate the measures.

 

One example of caution recently has been in the UK Pound. The announcement that pubs, restaurants and other hospitality venues may open from July 4th was met with jubilance in many cases but it also had the effect of undermining the Pound Sterling. This bucks the trend we’ve been seeing of late where economic activity enticing un-lockdowns are seen as supportive for the underlying currency. The potential disagreement between the government and the Chief Medical and Scientific Officers, who are now joined by a group of medical experts, over the decision to ease the lockdown is the probable cause for the breakdown in this relationship.

 

A deteriorating global risk appetite within markets is also responsible for the inverse relationship between lockdown easing and currency value this week. The handling of the lockdown in the United States has been a tangible failure for President Trump and one that is likely to have lasting effects on the US and global economies, not least the Presidential election later this year. As the incidence of infection across many States has been gradually rising, questions have been raised about the United States’ readiness for degrees of social normalisation. With an increase in infections yesterday alone of more than 38,000, those questions have been answered: No! Those States worst affected, so far seemingly isolated to the South and West of the Union, have taken measures to reintroduce elements of the lockdown. This development has caused a perceived increase in global risk and prompted emerging market assets to underperform once again at the expense of safe havens including the Yen, Franc, Gold and US Dollar.

 

So-called G-10 currencies are the most voluminously traded currencies in the world and often represent the largest or most developed economies. They find stability from this virtue and are seen as a safer port in a storm. Not for the Pound at the moment though, claims Bank of America currency analyst Kamal Sharma. He believes that the former core currency now trades with price movements that are “neurotic at best, unfathomable at worst”. A particularly pessimistic outlook for Brexit, monetary policy and the economy have led the analyst to the conclusion. For now the higher correlation to emerging market currencies is substantiating these claims. It does, however, seem somewhat too early to draw these conclusions with trade deals still on the table and an economic recovery to orchestrate. It is likely that it is a little too early then to follow his recommendation to chase the Pound to parity just yet.

 

 

 

Discussion and Analysis by Charles Porter

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Morning Brief – Social Media Activism

Social Media Activism

 

The most controversial arena in politics over the past decade has arguably been online. From election scandals to fake news, Cambridge Analytica to Brexit, the way campaigns are received online has shaped the course of politics. Now social media is fighting back and is taking credit for President Trump’s embarrassment at his campaign’s Tulsa rally on Saturday night.

 

The Presidential race this year has been overwhelmed by the Coronavirus. As lockdowns have eased across the United States, the President and his Democratic rival are keen to kickstart their 2020 Presidential campaigns. The Republican Party rally that took place on Saturday evening was supposed to be a key public engagement for the President. Planners had forecasted a bumper turnout for the Oklahoma rally and the show of Republican force despite coronavirus was supposed to reinvigorate the President’s ailing campaign. What the President arrived to was thousands of empty seats.

 

The rally was forecasted to be so busy that campaign managers had even planned spill over areas where people could be entertained whilst watching the address from afar. In the end, there was plenty of room for all. The culprit? Korean pop and social media. In times gone by that may have been an unusual cocktail to blame presidential election woes upon. However, a campaign on social media platform, TikTok, coordinated fans of K-pop music to register en masse for the rally using their mobile numbers but, crucially, not turn up to the rally. The group managed to deceive the Trump campaign and the empty seats that the President stared out to on Saturday evening satisfied their efforts.

 

Overnight there was a volatile episode within foreign exchange markets. A dramatic risk-off move was created when the White House’s trade advisor Peter Navarro commented that the US-China trade deal was over. A rapid appreciation in defensive assets including the Japanese Yen and Swiss Franc took place at the expense of risk assets including emerging market currencies and equities. The move rapidly reversed when President Trump took to Twitter to announce that “The China Trade Deal is fully intact”. The Pandemic has not been a good breeding ground for Trump’s volatile style of Politics. His approval ratings have suffered and unsurprisingly his polling prospects have worsened. It is possible that in order to make up some ground we see a more presidential President in the coming months before the US election.

 

 

 

Discussion and Analysis by Charles Porter

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Morning Brief – Growth

Growth
 

The word growth over the past few months has usually involved a discussion about the spread of Covid-19 and the change in the number of infections. But in normal times economic growth is discussed more as one of the main drivers of the value of a currency. Coupled with an appreciation of relative interest rates and you’ve got a fairly crude but workable model of the foreign exchange market. The virus has distracted classical projections of currency valuations based upon growth and economic fundamentals bringing about a new problem: How do you value a currency when each nation is in the same boat? Interest rates have tumbled towards zero in most developed economies and growth prospects are all dire.

 

I’m going to stick with the nautical theme to explain further. Let’s say you’re trying to figure out the path of G-10 foreign exchange – I.e the winners and losers out of USD, EUR, GBP, JPY, AUD, NZD, CAD, CHF, NOK, and SEK. Consider each of them a boat in a race across the Atlantic. Normally you’d place your bets based on the fundamentals of each competitor: how fast is the boat, how experienced is the crew, recent form etc. As the race progresses you’d trim or increase your positions on one or more boats based upon how that boat had got on in the race so far. For example, if AUD looked the best on the starting line but went the wrong way you’d start to shift your bets elsewhere.

 

But what happens when right in the middle of the race an almighty storm starts blowing? The relative position of the boats would be increasingly meaningless. Stuck in gale force winds in the middle of the Atlantic the question now is about who survives and can stay afloat. Even if you were on one of the racing boats you wouldn’t care which way you were facing you’d just try to keep your boat and crew above water. Those betting on the race would take as much risk off the table as possible but if they couldn’t exit betting altogether they’d orientate their bets on which ship they think is most likely to stay afloat.

 

That’s exactly what has happened in foreign exchange markets. The Covid storm initially necessitated valuations based upon a currency’s ability to weather the storm. In the height of the first wave of the pandemic, huge stimulus packages initially provided ballast to their vulnerable economies. This support was able to attract some value back to the currencies they concerned. Risk sentiment also became an even larger factor in market-wide foreign exchange valuations in the form of fluctuating feelings on whether the storm might go away altogether and will the race resume. As we enter the second stage of Coronavirus an air of normality is returning.

 

Stimulus is still important and there is no shortage of risk sentiment-induced FX flow. Markets continue to monitor the probability of a second spike with data coming out of the United States and China in the last few days painting a gloomy picture. In the UK today the Bank of England will present its latest monetary policy decision. The market is expecting an increase in the QE program of at least £100bn with a hold in interest rates at 0.1%. As ever the discussion surrounding economic projections and the potential use of negative rates will also be important for the value of the Pound.

 

 

 

Discussion and Analysis by Charles Porter

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Morning Brief – Interventions

Interventions

 

State intervention in the foreign exchange market is a taboo subject. On the one hand, each nation holds and reports reserves of foreign currencies that are seen as critical to financial and economic stability. On the other hand, if a nation uses those reserves too aggressively then it risks being labelled a currency manipulator. The US Treasury takes this very seriously and under its Competitiveness Act of 1988 it seeks to name and shame these countries for their efforts in “gaining unfair competitive advantage in international trade”. The repercussions do not stop at a mere pointing of the finger. Once labelled a currency manipulator the United States will pursue the elimination of this unfair advantage with the International Monetary Fund. The line to be trod between intervention and manipulation is therefore a very important one.

 

The United States and other developed nations care so much about currency manipulation because if foreign currencies are ‘undervalued’ the goods that trade within them are relatively cheaper. Take an identical good sold in China and the United States. If the good is worth $100 and sells for ¥700 then provided the USDCNY exchange rate is 7 then those goods are equally competitive – the consumer’s decision of whom to purchase from will not be influenced by price. However, if the People’s Bank of China steps in and sells CNY like there’s no tomorrow and buys USD in exchange and the USDCNY exchange rate moves to 8 then there’s a difference. Provided the Chinese vendor keeps the price at ¥700 then the relative value of that product in US Dollars in $87.5. Under these conditions the US claims an unfair advantage and pursues you with the combined weight of the US Treasury and the IMF. In truth then, currency manipulation only becomes the subject of politics and international relations when a country is seeking to devalue its own currency. It’s a little crude, but observation dictates that devaluation is manipulation and currency support is intervention.

 

Due to the huge sell off in emerging market currencies towards the beginning of the pandemic we have seen increased ‘interventions’ in the foreign exchange market. Whilst a currency devaluation like the one in the example above is good for competitiveness as far as price is concerned, sharp swings lower in the value of one currency destabilise investor/consumer willingness to trade with that country. If a currency loses 50% of its value against the Dollar, for example, you might say that is was a bargain. But at the same time, you’ll question what’s wrong with it and reconsider your purchase of the currency in question on the grounds that it could go lower.

 

We did in fact see these kinds of movements amongst the emerging market currency basket. The Brazilian Real, the currency of a nation that we now know to have the second highest COVID-19 death toll in the world, lost more than 50% of its value versus the US Dollar at the peak of the pandemic. South Africa’s Rand and the Mexican Peso lost close to 40% each versus the Dollar. The deteriorating sentiment towards these nations and the risk of capital flowing abroad prompted FX market interventions from these countries as well as others.

 

As of the beginning of June emerging market economies had burned through over $240bn in foreign currency reserves since the beginning of the pandemic. The main protagonists were China, Hong Kong, Saudi Arabia, Brazil and Turkey who had the largest changes in their net foreign currency reserves. Many emerging market nations are still fighting foreign currency outflows with Turkey alone in the last week spending around $1.5bn of its already depleted reserves in order to support the Lira. Due to the improvement in risk sentiment the market is helping to restore some of the value in emerging market currencies that was lost during the pandemic.

 

 

 

Discussion and Analysis by Charles Porter

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SGM-FX View of london

Morning Brief – Less Fireworks; more Firefighting

Less Fireworks; more Firefighting

 

Last night the Fed voted to keep US interest rates between 0%-0.25%. I’m not sure about you but having only recently witnessed emergency meetings slashing the benchmark rate and pledging to buy corporate securities the meetings seem somewhat mundane! Even if not quite as unexpected, the Fed’s decision last night has implications for a whole host of market participants. The Fed is currently buying about $20bn worth of US treasuries per week and last night it built up expectations that this monetary backdrop could last even longer than the market had previously thought.

 

Last night’s announcement comprised of the monetary policy decision, a press conference and the latest fed forecasts. Each of these three elements has a worthwhile story to tell. Firstly, the decision itself showed that the Fed does not expect rates to rise at all until at least the end of 2022. The announcement extended expectations of a protracted recovery and pinned yields at the far end of the yield curve at record lows. The factor blamed in this decision was unemployment.

 

This takes us neatly into the Fed’s predictions and point two. The latest forecasts from the monetary authority show unemployment falling to 9.3% on average this year. There is an anticipated improvement to 6.5% next year but the projections fall far short of the sentiment created after Friday’s stellar non-farm payroll report. Unemployment concerns undermined some of the recent recovery in asset valuations with stocks selling off heavily in Japan, Australia, Hong Kong and China this morning. The destabilisation of sentiment has also encouraged a bid into the US Dollar this morning thanks to an increase in global demand for defensive assets.

 

Ahead of last night’s decision the market was debating whether the Fed might embark upon a path of explicit yield curve control. Such a move is an extraordinary monetary policy tool explicitly limiting the range that debt instruments of all durations can trade within. It would be a hyper-dovish move from the Fed and the monetary equivalent, if you like, of a severe lockdown. The press conference made clear the Fed was not embarking upon this path and the Dollar has partially recovered this morning on the back of the Fed’s decision not to discuss this policy measure.

 

 

 

Discussion and Analysis by Charles Porter

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Morning Brief – Spot the Difference

Spot the Difference

 

 

What do the following two graphs have in common?

 

 

 

 

Points for the best answer: they both have a blue line, they both demonstrate limited finesse on Excel, they both don’t have labels on their axes? You’re all correct, but the true problem hidden beneath these graphs is far bigger. In fact, these two graphs represent the exact same economic data. In the last few days I have seen both of these graphs used in their varying colours and camouflage to depict the status of US employment. The chart on the left is a misleading depiction of the US jobs market, the right a more realistic interpretation of the impact of the virus on the US economy. I’ve picked up on this sort of reporting before, resetting the balance of journalism one daily brief at a time (or not!). And, as usual, the culprits shall remain anonymous. All I’m saying is that the chart on the left Can Not Be Considered correct.

 

In the United States there is a popular statistic published monthly that demonstrates the number of jobs added of lost in the United States in that given month as a result of payrolls added or lost. It offers an accurate snapshot of the economy with the headline not concerning itself with the level of unemployment (which encourages estimations of the size of the underlying labour force). Farming payrolls are not considered due to the highly seasonal nature of this type of employment which would, if included, have a tendency to distort the statistics based upon weather and agricultural trends. If interpreted properly therefore, the non-farm payroll statistic can be a powerful tool.

 

With so much talk of V- U- L- shaped recoveries, a chart like the one on the left showing the marginal change in non-farm payrolls in a given month would lead the observer to conclude that the downturn in employment as a result of the coronavirus has concluded and the economy is back (or even higher) than where it left off. When we aggregate that data and compare the change in the total number of jobs in the exact same period we end up with the graph on the right – one that reliably informs us that the US economy still has 20 million less jobs that it did 3 months’ ago.

 

There have seldom been more important times for the public to have a clear and transparent picture of health and economic statistics. Perhaps even the stock market is believing this kind of data. Following a 1.2% rally yesterday in the US stock index the S&P 500 we can now claim stock valuations have clawed back their 2020 losses to now trade flat on the year. These gains in no small part have been from Friday’s non-farm payroll data. The lion’s share of the move I concede has been central bank action but the continued exaggeration between fundamentals and prices within stocks this week is alarming.

 

A final note on the data. The reason why the increase in jobs reported in the US on Friday had an important impact was because the market had been anticipating a decline of around 8 million, adding to the 20.6 million loss registered for the month of April. If the decline in US jobs has abated, as the data appears to show, then quite rightly the market might scale up its expectations of economic recovery. That doesn’t change the misleading nature of the graph. Within the report released last week was also a note signalling a potential misclassification and error in the collection of the data. The caveat has spurred discussions of a potential political influence in the statistic released and at best undermines the accuracy of this months’ data. All the more reason to be cautious in our depiction of the data.

 

 

 

Discussion and Analysis by Charles Porter

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