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Summary
- S&P 500 index declined by 0.2%, closing at 3,373.43 on 13 August, nearly breaking its all-time record 3,386.15 on 19 February.
- On the same day, European stocks headed lower, pulled down by banking and mining stocks, while most indices closed higher in the Asian stock exchanges.
- The US Unemployment claims declined below 1 million for the first time in 21 weeks, but the detrimental impact of COVID-19 still prevails on the jobs market.
- Amid expiration of $600 per week unemployment aid in July, attempts to restart economic relief negotiations between White House and Democrats ended minutes after it began, with Trump rejecting the deal.
- US President Donald Trump signed an executive order that will provide an additional $400 a week to people, but the order can take months to implement, and states (running out of money already) are anticipated to contribute to the plan.
The benchmark S&P 500 Index closed 0.2% lower to 3373.43 on 13 August after catching investors’ eye, who expected the index to breach its record high level from February. The record high for S&P 500 stood at 3,386.153 on 19 February. The index closed in red on 13 August, after trading briefly above its record closing for the second day in a row.
On 13 August, on S&P 500 index, stocks switched between gains and losses as better than expected unemployment statistics lifted optimism, but ongoing stimulus talks in Washington weighed on the gains. Dow Jones Industrial Average, close on the heels of S&P 500 ended 0.29% lower, while Nasdaq Composite ended the session 0.27% higher at 11,042.5.
Market experts believe that the market recovery from the March lows to hit new all-time peak would be the quickest reversal from a price drop of 30%. However, as many sectors closed in red, more broad market involvement is likely to be required.
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As per Johns Hopkins University data, COVID-19 has infected less than 2% of the US population and killed at least 166,970 people in the US, so far.
Stock markets in Europe plummeted on 13 August as bubbling strains amid the US and China, and elusive US fiscal stimulus forced investors to book profits post four consecutive sessions of gains, while Airbus declined as Washington kept aircraft tariffs unaffected.
STOXX Europe 600 Index declined by 0.63%, pulled down by banking and mining stocks. Dutch insurer Aegon (AS:AEGN) plunged 12% after it missed its revenue estimates, as its earnings were low by 31% for H1 of 2020 triggering the Company to slash dividends by 67%.
On 13 August, Chinese Shanghai Composite and Hong Kong’s Hang Seng index gave mixed performance, up by 0.4% and down by 0.05%, respectively. Japan’s Nikkei 225 index outpaced other indices and was up by 1.78%, as regional investors were faithful to US-China trade deal.
Further, investors have now shifted to Treasuries, comprising the 10-year benchmark note, since yields have soared the most since early June. Yields also weighed on the dollar, pushing it lower for a second day, prior to US jobless claims reports being published. The US dollar index fell by about 0.22% to 93.24 on 13 August, while Gold Spot US Dollar jumped 1.84% to $1,953.03.
Unemployment stays as a huge problem
The US unemployment data released on 13 August showed that the first-time claims for unemployment insurance last week fell below 1 million for the first time since 21 March, suggesting that the labour situation might be strengthening, but signs of the upsetting impact of COVID-19 on the US jobs market stays.
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The total unemployment claims for the week ending 8 August, gathered from the labor department stood at 963,000, slightly below the estimated 1.1 million by analysts polled by Dow Jones, and represented a decrease of 228,000 claims from the previous week. The data also showed that the economy had recovered only 9.3 million jobs, out of the 22 million jobs lost between February and April, signalling a long road ahead to achieve pre-pandemic levels.
For the past 2 months, the US jobs market has been picking up. The US gained 1.8 million workers in July, and the unemployment rate dropped from 11.1% to 10.2%. The increases were mainly in pubs, bars, and the leisure industry, which had laid off millions of employees temporarily since the outbreak of the epidemic.
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Unemployment stays as a major problem for the US economy. Though the number of people applying for unemployment protection, including regular and PUA benefits, is dropping gradually as layoffs subsides, but job losses stay incredibly high, way above the pre-pandemic point.
Ending of the Economic Relief bill
Stimulus bill negotiations between the White House and Democrats started on 12 August, ended in just a few minutes with Trump declaring that the deal will not happen.
The motive of the negotiations was to renew key parts of the $2 trillion CARES Act, passed by Congress in March, as the $600 per week jobless aid expired at the end of July. The CARES Act provided greater unemployment benefits to 30 million Americans, increased eviction rights, and contained several measures intended to mitigate the economic effects of the coronavirus pandemic.
Donald Trump has taken an executive action on unemployment that will offer an extra compensation of $400 a week, but it will take months to enforce the initiative and cash-strapped states – some of which are now short of funding – are required to commit to the program.
Further, since negotiations have crumbled between Republicans and Democrats in Washington, the strain of assisting the economy has descended on the Federal Reserve that has poured trillions of dollars into the financial sector to support companies and economies. However, the major instruments of the Fed are lowering the benchmark interest rate and purchasing bonds.
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Fed cannot provide people checks, which is why its policies have accomplished only a bit to aid renters facing eviction or small companies on the brink of dying. Fed officials have encouraged Congress to move rapidly before the economic harm becomes irreversible.
