Weekly Market Insight

Latest Economic & Market Update 28th August 2020

28th August 2020

Good afternoon, it is August 28th 2020 and here is your economic and market update from BlackBee. 

Today’s focus:

  • Graph of the Week: Dovish FEDs new approach will see interest rates stay near zero even if inflation picks up
  • Shinzo Abe steps down due to ill health
  • Drop in Americans applying for unemployment benefits this week

Graph of the Week: Dovish Fed’s new approach will see interest rates stay near zero even if inflation picks up

In a speech yesterday for the Central Banks Annual Policy Symposium, the Federal Reserve Chair Jerome Powell announced a new Fed approach which puts jobs growth at the forefront of monetary policy in the US. The Fed will not be raising interest rates to guard against inflation, potentially for years to come. Under the new approach, inflation and employment will be allowed to run higher with Mr. Powell stating that the goal is for inflation to average 2% over time. The Fed will allow the inflation rate to run above the 2% target to make up for years of missing it, however reaching an inflation level of 2% will be very difficult under current circumstances. The unemployment rate in the US stands at 10.2% and with the coronavirus still not under control, a large amount of uncertainty remains around the path of economic recovery in the US, but the low interest rates translate into cheaper loans and will help economic recovery. Following the news about the Fed’s new strategy, stocks climbed and there was a sell-off in 30-year US Treasuries, driving the yield higher and steepening the yield curve. The longer-dated treasuries were sold off due to the risk of possible inflation eroding returns. The gap between the 5 and 30-year Treasuries reached their widest gap in two months. As of late, concern has been growing among investors regarding whether the stock market can sustain the rally. In some metrics, stocks are considered overvalued and it is also noted that big players such as Amazon and Apple have been driving the rally in major US indices with the number of stocks participating in the uptrend and volume dropping off. Investors are searching for yield and with bond yields at unprecedented low levels and concern over how far the equity rally can extend, alternative asset classes such as infrastructure could provide the yield investors are looking for.

At a glance:

  • Figures released yesterday showed that 1 million Americans applied for unemployment benefits last week, down from 1.1 million the week prior.
  • Following the finding of data irregularities, the World Bank has suspended the release of its global business climate index which accesses the business environment and competitiveness of each country.
  • Japans Prime Minister, Shinzo Abe is standing down from his position due to illness following an eight-year term.

Best & Worst Performers of Large Cap US Stocks on Thursday
Click the image to enlarge

Global Market Update
(as at close of markets 27/08/2020)