Welcome to your weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last week.
US unemployment data much better than expected
US initial jobless claims, which measure those filing for unemployment benefits for the first time, fell to 730,000 last week, much better than economists’ expectations of 845,000. This is the first time in six weeks that claims fell below 800,000, although still notably above the pre-pandemic average of 200,000.
The number of continuing jobless claims, which tracks those who have been receiving unemployment benefits for a while, also fell, coming in at 4.4 million – double the pre-pandemic level.
While the labour market continues to struggle with pandemic restrictions and relatively lower activity levels, these improvements suggest it is stabilising. And when viewed in combination with last week’s positive US retail sales data and falling COVID-19 cases across the country, an improving labour market is another supportive sign that the US economy is moving in the right direction.
Euro area business and consumer confidence picking up
Euro area manufacturing PMI data, which has traditionally served as a useful leading indicator for economic activity, rose from 54.4 to 57.7 – its highest value since February 2018. PMI data measures sentiment around business conditions by surveying purchasing managers, and an increase reflects increased confidence. The size of the increase indicated a more favourable, expansionary outlook than economists had expected and that the manufacturing sector expects significant growth over the next few months.
Results from the consumer confidence survey, which reflects households’ assessments of their future financial conditions and intentions to make major purchases, also presented a more positive outlook than expected. This improvement points to a greater likelihood of confident consumer activity later in the year when mass vaccination against COVID-19 has been achieved.
Fed Chairman Jerome Powell speaks to Congress
The US Federal Reserve Chairman spoke to Congress on Tuesday, striking a decidedly pessimistic outlook, concluding, “the economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved.”
This outlook, coupled with the Federal Reserve’s change towards average inflation targeting last year, suggests that while US inflation may increase in the short term above the Fed’s target of 2%, the likelihood of monetary policy tightening within the next 12 months is remote.
With inflation expectations rising as the US economy recovers and the Federal Reserve policy rate currently at the historic low of 0.25%, attention has turned to the US Treasury 10-year yield – a closely watched indicator of investor confidence and their expectations for the path of future policy rates.
Despite Powell’s negative outlook, the US 10-year yield increased to 1.42%, signalling investor confidence in the economic recovery and demand for riskier assets over safe havens, treasuries included.
The most significant development in asset markets was the sharp sell-off in US Treasuries. Over the week the US 10-year yield nudged above 1.5% for the first time since the start of the pandemic, before settling at 1.42%.
The move in the US 10-year yield, which is a fundamental part of asset valuations, sent reverberations through equity markets, with the MSCI ACWI finishing the week 2.4% lower. Within this move, value stocks continued to outperform growth stocks.
Six Minute Strategy – will rising bond yields ruin the party?
In his latest briefing, CIO Guy Monson discusses the move in the 10-year Treasury yield and what it means for financial markets.
In next week’s macro update we’ll be focusing on global PMI survey results, Euro area CPI and US non-farm payrolls.
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