A goldilocks employment reading in the US was sufficient to stop the bears in their tracks, if only temporarily.
US unemployment recovery
The number of 559000 was significantly shy of estimates, but was also confirmation that the recovery remains on track. At the same time, the unemployment rate of 5.8% is still some way off the readings of around 3.5% pre-pandemic, suggesting that there is still slack in the labour market and that there remains work to be done.
It also suggests that interest rate rises remain on the far horizon and, while talk of tapering may be becoming more entrenched at the Federal Reserve, there is no pressing need for them to change tack immediately. However, the inflation number later in the week could change the narrative once more.
In the meantime, this easing of inflation and therefore interest rate rise fears propelled a rotation into growth stocks, which have been out of favour more recently, and big tech in particular. For corporates in general, the ramifications of the G7 agreement over the weekend to impose a minimum global corporate tax of 15% remain to be seen. At this stage, the proposal is in its early stages and potentially imposing such a rule for the G20 as a whole could be a demanding process.
The rotation into growth saw a progressive day for the Nasdaq and S&P500, which now stand ahead by 7.2% and 12.6% respectively in the year to date, while the benchmark Dow Jones index is up by 13.5%.
Further evidence of the global economic recovery came with a strong imports reading from China, which could have ramifications for a raft of asset classes ranging from commodities to mining stocks.
The UK is also showing evidence of recovery, with an accelerating hiring rate for labour resulting in bottlenecks in certain sectors. At the same time, although the tourism sector remains light of overseas visitors given various travel restrictions, the number of local inhabitants looking to “staycation” is providing a strong boost to pockets of the UK.
From an investment perspective, meanwhile, the relative success of the vaccination rollout programme - despite the latest variants – and the strength of sectors such as housebuilding provide further grounds for optimism for the UK as an increasingly favoured destination. The FTSE100 is now ahead by 9.5% in the year to date, while the more domestically focused FTSE250 has now added 11.5%.”
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These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.