Bassanese Bites: FOMO Fever – June 09 2020
Good news is good news. Bad news is good news. And no news is good news also! Global equities pushed higher last week as positive ‘re-opening’ data, no second waves, and confidence in unrelenting fiscal and monetary stimulus continued to buoy investor sentiment. Key U.S. manufacturing and non-manufacturing indices bounced a little more than expected in May, though still remained mired at recessionary levels. China’s Caixin industry indicators also continued to suggest economic recovery is progressing well.
Of course, the highlight last week was the much better than feared U.S. May payrolls report, which revealed a 2.5 million rebound in employment (after 20 million job losses in April). The market – which was expecting 8 million further job losses due to continued weakness in industry surveys and jobless claims – got this horribly wrong! While some of the surprise employment result appears to reflect data distortions (some of the unemployed still considered themselves employed and new government incentives likely encouraged some re-hiring of workers even if they’re not being used) it’s also true that some business like bars and restaurants were allowed to at least partly re-open in May.
Let there be no mistake: we’re now in full-blown across-the-board risk-on mode – even long unloved ‘value’ sectors like financials and energy are rebounding, along with bond yields and emerging markets. Gold and the $US have, accordingly, retreated somewhat. As I’ve noted here for the past few weeks, the news flow seems likely to remain positive in at least the short term, with an initial heartening bounce in economic data as economies re-open. Longer-term concerns remain, however, reflecting the risk of a CV-19 second wave (not helped by recent massive street protests), a still likely sluggish economic recovery and now very high U.S. equity valuations.
The only other risk to markets is any potential talk of scaling back monetary or fiscal stimulus. In this regard, the Fed’s meeting on Wednesday – and Fed chair Powell’s press conference – will be of interest. But I suspect his main message will continue to be he’ll do “what it takes” to support recovery.