US jobs data doesn’t disappoint

Logic investment Podcast - 10-08-2020

Investors continue to look at the data, and US jobs results heartened many while a cautious eye is being kept on US-China relations. The latest podcast that keeps you up to date with investment developments across the globe…

In brief

* US markets took heart from better than expected unemployment data, here the retail and leisure sectors showed particular improvement.

* China’s tech stocks were hit by a US ban on heavyweights Tencent and WeChat, as tensions escalated between the two superpowers.

* Fund flows into the ESG sector were very strong in Q2, with total sustainable funds topping $1 trillion globally for the first time.

Our view

US markets were hotly awaiting July unemployment data. How did that come out?

The data didn’t disappoint. If we look at where we were coming from, the June unemployment number was 11.1%. And the market was hoping that unemployment would fall to 10.5%, but it exceeded those expectations and came in at 10.2%. So a real surprise here, which helped the market towards the end of last week.

And where are those employment gains being made?

The jobs gains are definitely coming through in the retail sector. Also within leisure and hospitality you see a big jump in jobs, a really positive improvement there.

We’ve seen an escalation in tensions between the US and China this week.

President Trump issued an executive order, banning US companies from dealing with the Chinese technology apps TikTok, and WeChat within 45 days. And that was predicated on the national security risk of leaving Americans’ personal data exposed.

And what is the president’s aim here?

We think the clampdowns are just one action in an increasingly broad campaign from the US against China, ranging from trade to human rights. This action is significant, aiming to curb China’s power in global technology. And it’s really a continuation of the campaign Trump’s been waging against these Chinese apps, which he has described as a threat to US economic and national security. It’s reasonable to expect that Trump will continue to increase pressure on China, across tech as well as other areas, as he campaigns for re-election in November.

How did the market react to that?

Predictably, the Chinese equity market didn’t react favourably to the announcement. The largest tech stocks lost more than $75 billion in market capitalisation on Friday. Shares in Tencent, which is the second largest tech name in China and the owner of WeChat, were initially down 10%. But it did recover on the day to be down just over 5%. One of the reasons this sell-off was so severe was the ambiguity in the wording of the executive order, such that really it could mean anything. Plus, these tech names like Tencent have seen their share price rise materially over the last month. So the announcement from Trump really was an opportunity to take some profits.

Turning to ESG, we’ve had Morningstar sustainable fund flows data. How do they define sustainable funds?

In Morningstar’s eyes, a sustainable fund is one that uses ESG criteria as a key part of their security selection process and/or indicates that they pursue a sustainability-related theme and/or seeks a measurable, positive impact alongside financial return.

And how did the fund flows look?

It’s been a very positive quarter. In Q2 2020 sustainable flows were supported by growing investor interest in environmental, social and governance issues, as well as the stock market recovery. Global inflows into sustainable funds were up 72% in the second quarter to $71 billion. And total assets held in sustainable funds globally breached the $1 trillion mark for the first time. If we break that down a little bit, Europe continued to dominate in this space, gathering 86% of the global total inflows, while the US took in 14%. Flows in the rest of the world were considerably lower, clocking in at $260 million for Canada, Australia and New Zealand combined, while Asia reported outflows.

In the week ahead we’ll be keeping an eye on the geopolitical stories.

What else, in the US specifically?

We have companies’ earnings reports continuing this week, with a couple of weeks to go on that front. We have inflation data on Wednesday, but no real surprises expected there. Retail sales on Friday are expected to be a little bit weaker because we’ve seen reversals of some of the easing measures, as a result of increased Covid cases. So that should impact retail sales negatively.  

What is next for investors?

* Markets will look for signs of increasing tension between the US and China.

* Safe havens assets, such as gold and government bonds, should remain
in the spotlight.

* In the meantime, patience and a long-term view might be needed while waiting for a revival of economic activity and asset prices.

Listen to the latest podcast HERE

Logic Wealth Planning provides independent financial advice in Manchester, Bury, Rochdale, Cheshire and the surrounding area, but not limited to the region.