Market Update 29th May – 7th June 2020

Stocks climbed higher for the third week in a row, oil jumped, and Treasury yields rose to an 11-week high following a surprising gain in payrolls last month. The U.S. economy added 2.5 million jobs in May, while the unemployment rate declined to 13.3% from April’s record level, suggesting that an economic recovery is under way faster than previously thought.

Even though economic activity will likely take a while to return to pre-crisis levels, last week’s employment data may be laying the foundation for a long-term recovery. Following last week’s rally, the S&P 500 has now erased its losses for the year. Some uncertainties that could trigger higher volatility remain, but the recent market advance highlights the importance of staying invested, even through the most difficult times.

Further evidence of economies beginning to open up, combined with the announcement by the European Central Bank of a bigger than expected boost to its stimulus package, helped to broaden out equity market performance this week, with Europe and the Emerging Markets performing strongly.

US equities had risen 2.2% over the week, whilst European stocks, which have markedly lagged the US since the market trough, rose 5.6%, whilst UK equities were up 5.5%. Japanese equities climbed 3.1%, Australian equities rose 4.2% and the emerging markets were up 6.3%. At a sector level, those areas that have been left behind in the market rally, were the best performing sectors with travel and leisure, financials and energy stocks all outperforming.

Conversely, government bonds gave up some of their gains this week, as investors rotated out of safe assets into more risky areas.  10-year US Treasuries yields, which move inversely to price, rose over the week, now yielding 0.91%.  Similarly, German Bund yields rose, currently yielding minus 0.27%, and UK 10-year gilts are yielding 0.35%.  Gold also gave up some gains, falling by 2.65%, trading at $1,685 an ounce.

Industrial commodities performed well, with copper, long considered a good indicator of economic activity, rising by 4.2%.  Brent crude oil, spurred on by news that OPEC had agreed to meet up over the weekend to discuss an extension of production cuts, increased by over 16% and is now trading at $42.30 a barrel. WTI is trading at $32.44.

The dollar also gave up some of its strength, falling by just over 2% versus the Euro and Sterling, a further sign that investors are rotating into more risky assets across the globe.

The Chinese Caixin services sector PMI (Purchasing Managers Index) rose above 50 in May, the first indication that services are no longer contracting in China, with 50 being the dividing line between contraction and expansion.  The index came in at 55, against expectations of 47.3, with new orders jumping by the fastest pace in a decade.  Manufacturing came in at 50.7, nudging into expansion territory for the first time since January.

Travel and tourism stocks, unsurprisingly a laggard in the stock market recovery, had a good week as more countries agreed bilateral travel agreements between them, opening up the possibility of travelling abroad being relaxed in the coming weeks.