Market round up: 3 – 7 August

Thomas Watts

This week

In a week that saw markets whipsawed once again over fears of a potential second wave of Coronavirus infections, it was shares in Disney that proved to be the fairest of them all as the company produced a surprise quarterly profit, acting as a bellwether for consumer confidence.

The company which now owns a streaming service, the rights to a multitude of film titles including Star Wars and the Marvel Studios franchise, as well as a host of theme parks, had investors in wonderland, rising 8.8% on Wednesday. Notching its biggest daily rise since March, Disney showed signs that visitors were returning to its parks in droves and that lockdown had a positive impact on Disney+, its streaming service. Although economic data for the US has painted a mixed picture, investors learned to let it go, instead focusing on the fact that 384 companies in the S&P have reported earnings, and the results have so far come in 23.5% above expectations in aggregate.

After showing some signs that economic activity was picking up in the UK, the Bank of England brought investors back down to earth with a bang, stating that Britain’s economy would probably take longer to get back to its pre-pandemic level than it previously thought, but it was still weighing up the risks of cutting interest rates below zero to jump-start growth. The Bank also announced a unanimous vote by its policymakers to keep its interest rate at just 0.1% and make no changes to its unprecedented bond-buying programme. Attempting to soothe investors, Andrew Bailey, Governor of the Bank commented on the prospect of negative rates:

“They are part of our toolbox ... But at the moment we do not have a plan to use them.” Maintaining rates whilst not overcommitting on cutting them led sterling to carry on its ascension against the USD, a theme that has been present since the summer, pushing $1.32 to levels not seen since the beginning of the year.
The first Friday signals the release of the US employment data which saw a fairytale ending to the week as the US economy added 1,763,000 jobs, far outdoing the 1,530,000 forecast. Average hourly earnings also ticked up by 0.2% compared to a consensus fall of -0.5%.

Next week

As the coming week sees the weather get nicer and nicer, economists will have their sights set on Monday’s UK GDP estimate released by the National Institute of Economic and Social Research (NIESR). NIESR attempts to estimate GDP data on a monthly basis, in an effort to predict the quarterly government-released data, and should act as a useful gauge for when the actual numbers are released in a few weeks.

Maintaining focus on the UK, Tuesday sees the Office for National Statistics release its claimant count numbers, detailing the change in the number of people claiming unemployment-related benefits during the previous month. With the Governor of the Bank of England backing potential plans to end the government’s furlough scheme in October, the statistics should take on further relevance. More than nine million jobs have been furloughed under the government's job retention scheme, but the Bank expects most people to go back to work as the economy recovers. Trade unions have urged chancellor Rishi Sunak to extend the scheme, which pays a share of workers' wages, to avoid mass job losses. However, the Bank said it was right to focus on helping people to find new jobs.

As the US President, Donald Trump, plays no more Mr. Nice Guy with US technology firms, it will be interesting to see the impact such companies have had on consumer spending habits, with the data released on Thursday. As consumers continuously turn to ecommerce during lockdown for their needs, it will be interesting to see just how much this trend has persisted and if confidence is being breathed back into the world’s largest economy.