Overview: Global stocks rallied sharply last week on optimism around reopening world economies, renewed stimulus, and a better-than-expected unemployment report in the U.S. International stocks led the way, with emerging markets (MSCI EM) up 7.9%, and developed international (MSCI EAFE) up 7.1% for the week. Here in the U.S., the S&P 500 index was up 5%. European stocks were aided by a renewed round of stimulus, as the European Central Bank (ECB) increased its Pandemic Emergency Purchase Programme (PEPP) by 600 billion euros ($680 billion) and extended asset purchases through June 2021.
In bonds, Treasury yields moved higher on the back of positive risk sentiment last week. In the U.S., the 10-year Treasury yield rose 0.25% to 0.90%. Meanwhile, risk premiums, or the difference in yield between credit and Treasury bonds, continue to compress. For example, U.S. investment-grade corporate bond spreads have decreased 0.25% to 1.46% over the course of June. Strong demand and the Federal Reserve’s support of the markets have aided U.S. high yield spreads as well, which have decreased by over 1% in the first week of June.
From JP Morgan: The May jobs report showed a surprise 2.5 million rise in nonfarm payrolls, as the unemployment rate declined to 13.3% from 14.7% in April, defying expectations of 19%. Half the rise in payrolls occurred in food services and drinking places, with solid gains in retail, construction, manufacturing, and health care. Gains may be stickier in construction and manufacturing, while gains in restaurants and retail may have been supported by PPP loans requiring employers to maintain payrolls. It should be noted that without reporting misclassifications, temporary layoffs would have been higher, boosting the unemployment rate by 3 percentage points. Still, this report reflects the gradual reopening of the economy. It also sheds light on various measures of unemployment. Many have focused on the over 42 million cumulative initial jobless claims filed since mid-March. However, that likely reflects people having to reapply after applying to the wrong program or encountering technological issues, or workers who were rehired or found new jobs. Although the jobs report was better than expected, unemployment is still extremely high, labor market recovery will likely be slow and not linear, and the unemployment rate could remain in double digits at the end of 2020, challenging the exuberance of the equity market.
Weekly Returns and Data
Sources: Goldman Sachs Asset Management, JP Morgan Asset Management
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