The U.S. jobs report remained in the spotlight this week, with Friday bringing the closely watched monthly nonfarm payrolls report. The U.S. added 559,000 jobs in May, below consensus forecasts of around 650,000. Whilst the number missed estimates, it was strong enough to shake off fears of a substantial slowdown in hiring after April’s disappointing monthly report, but not enough to spur higher inflation concerns – as a result, we saw stocks rally with the S&P 500 reaching a new all-time high and the dollar weakening on Friday.

The Bureau of Labor Statistics said that the unemployment rate had fallen to 5.8% from 6.1% in April, still significantly higher than the 3.8% unemployment rate recorded in February 2020 before Covid 19 hit. ADP payroll employment numbers released the day earlier came in well above estimates at 978,000 vs. 650,000 estimated.

Despite mixed employment signals, Federal Reserve officials once again reiterated that significant slack remained in the economy and that the Fed was far from achieving its inflation and employment targets but stressed that the Fed would be quick to act if inflation does not prove to be “transitory”.

President Biden has pitched Republicans the idea of a 15% minimum tax rate on U.S. corporations. It also sets aside Biden’s orginal proposal to raise the headline corporate income rate to 28% from 21%, a non-starter for Republican lawmakers. In return, Republicans would have to agree to at least $1 trillion in new infrastructure spending.

At the same time, the G7 group of nations are set to agree on a common position on taxing multinational companies, ending a three-decade race to the bottom in corporate taxation which would raise extra revenue for governments around the world. The G7 are nearing a deal to pursue a minimum corporate tax rate of at least 15% in international negotiations but remain at odds over how to treat global technology companies.

Eurozone inflation rose to 2% in May, the first time it surpassed the ECB target in more than two years, complicating policymakers decision next week on whether to maintain its ultra-loose monetary policy. The unemployment rate also eased unexpectedly to a level of 8.0% in April. In the prior month, unemployment was recorded at 8.1%.

China suprisingly relaxed its current two-child policy on May 31, allowing couples to have a third offspring. In January 2016, China relaxed its one-child policy to allow two children per family.

A second major cyberattack on critical U.S. infrastructure has taken place in less than a month. Hackers, alleged to be from Russia again, took the world’s largest meat producer, JBS offline this week. JBS’s five biggest beef plants in the U.S. halted processing following the weekend attack, equal to one-fifth of all of America’s meat production.

Oil prices surged on Wednesday, hitting their highest level in more than a year from a decision by OPEC+ and allies to stick to the plan to gradually restore supply, despite the alliance anticipating tighter oil markets going forward.

With the exception of Asia, global equities were modestly stronger this week. In the U.S., the Dow Jones (+0.66%), S&P 500 (+0.61%) and Nasdaq (+0.48%) were all stronger. Similarly, the Euro Stoxx 50 (+0.46%) and FTSE 100 (+0.66%) were positive, whilst the Nikkei 225 (-0.71%) and Shanghai Composite Index (-0.25%) were outliers.

Market Moves of the Week:

Locally, the Competition Commission ruled that the proposed takeover of Burger King by a U.S. private equity fund be prohibited due to the lack of BEE in the new ownership structure. While the Commission found that the proposed transaction was unlikely to impact Competition in SA, the Commission found that ”…the merger would lead to a significant reduction in the shareholding of historically disadvantaged persons in the target firm…”.

South African unemployment hit a record high with over 7 million people without a job. The official unemployment rate for the first quarter of this year reached 32.6%. Among the hardest hit are the South African youth with 74.4 percent of them facing unemployment.

The JSE All Share Index ended the week up +0.40%, with all three of the major sectors including resources (+0.49%), industrials (+0.55%) and financials (+0.11%) marginally stronger. The rand continues to strengthen and leads other emerging markets as the strongest currency against the U.S. Dollar year-to-date. As of Friday’s close, the rand was trading at R13.42 to the U.S. Dollar.

Chart of the Week:

The surge in early retirements spurred by the pandemic is increasing inequality among Baby Boomers in the U.S. At least 1.7 million older workers retired early, according to a report by the New School for Social Research’s Retirement Equity Lab.The Covid-19 health crisis is creating two classes of early retirees: people who have investments and are taking advantage of the unprecedented surge in shares and home prices; and low-paid workers without much retirement savings finding themselves forced out of their jobs with little prospect of finding employment again.

Whilst volatility is likely to continue amid current market uncertainty over the coronavirus pandemic, our message to all investors remains the same – stay calm in making decisions that are aligned with your long-term goals, not current market conditions. In any market environment, we strongly believe in the importance of having a portfolio that contains a variety of asset classes, including stocks and bonds, balanced in a way that reflects the investors risk tolerance and investment timeline.

As always, we appreciate your support and value your trust in LNKD Investment Managers..

The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell or an indication of trading intent on behalf of any LNKD product. LNKD Investment Managers is an authorised financial services provider (FSP 51257).

U.S. Federal Reserve officials this week again stressed that the current higher inflation rate wouldn’t last long enough to put pressure on the U.S. economic rebound. The term transitory thus remained the key theme surrounding inflation, which helped calm investors nerves about the U.S. tightening its monetary policy. Continuing with this theme, mixed U.S. economic data released this week, such as the fall in weekly jobless claims and lower than expected manufacturing gauges, further calmed investors worried about an overheating U.S. market. Although long-term inflation concerns have subsided, the U.S. Department of Commerce announced on Friday that the core personal consumption expenditures index increased 3.1% year over year. Fed officials attributed this temporary rise to base effects and production bottlenecks. 

President Biden proposed the largest U.S. budget ($6 trillion) since World War 2. If successful, total spending would rise to $8.2 trillion by 2031 while deficits would run above $1.3 trillion over the next 10 years. Forecasts also suggest that total U.S. debt would rise to 117% of gross domestic product by 2024. The plan assumes a steady inflation rate and a capital gains tax hike in 2021. 

In a similar story to the Gamestop saga, retail investors continued to show their influence on the market as the share price of the “meme stock” AMC skyrocketed this week on the news that large influential investors were shorting the stock. Short sellers are estimated to have lost a massive $1.2 billion this week. Bitcoin remained extremely volatile this week as numerous events surrounding the crypto currency took place: Iran banned the mining of cryptocurrencies, Elon Musk tweeted that he is pushing to make crypto mining more sustainable, and Cathy Wood’s ARK Invest bought $20M worth of the currency.

European markets moved positively on the news that accommodative monetary policies were there to stay. On another positive note, a Dutch court ruled that Royal Dutch Shell has to take accountability for its contribution to climate change and ordered the company to lower its CO2 emissions. This increases the support for the worldwide sustainability movement as the ruling was the first of its kind.

China and Washington held their first trade talks since the election of Joe Biden, with both sides agreeing on the importance of their bilateral trade relationship. Earlier this week, China banned the selling of commodities to retail investors in an attempt to halt the current surge in commodity prices. 

Japan remains in a state of emergency as their recent widespread Covid-19 outbreak continues. As a result, doubt has risen over Tokyo’s plan to host the Olympics in less than two months. Japan’s vaccination programme and their ability to contain this outbreak will remain in the spotlight over the coming weeks. 

For the week, global equity markets were positively steady. In the U.S., the Dow Jones (0.94%), S&P 500 (1.16%) and Nasdaq (2.06%) were all stronger. Similarly, the Euro Stoxx 50 (1.11%), FTSE 100 (0.06%), Nikkei 225 (2.94%) and Shanghai Composite Index (3.28%) all ended the week in the green.

Market Moves of the Week:

In South Africa, power utility Eskom managed to reduce its debt by almost a fifth, which was well received by the market. This was due to the company managing to repay matured loans while benefiting from a more favourable exchange rate. On a negative note, South Africa reported a 33% jump in daily Covid-19 infections on May 26. The government has been considering bringing back some stricter lockdown measures to try help curb the recent spike in infections.

The JSE All Share Index ended the week at its best level in three weeks up 1.99%, after South African companies’ results continued to surprise to the upside with improved corporate earnings.

Chart of the Week:

U.S. market-based inflation expectations for the period 2026 to 2031 have calmed down of late, after a spike to 2.4% earlier this month. Since then, expected rates have fallen back  closer to 2.2%, the kind of level that the Fed now says  it would be happy to tolerate. 

Whilst volatility is likely to continue amid current market uncertainty over the coronavirus disease, our message to all investors remains the same – stay calm in making decisions that are aligned with your long-term goals, not current market conditions. In any market environment, we strongly believe that investors should stay properly diversified across a variety of asset classes and that clients financial plan supports their long-term goals, time horizon and tolerance for risk.

As always, we appreciate your support and value your trust in LNKD Investment Managers.

The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell or an indication of trading intent on behalf of any LNKD product. LNKD Investment Managers is an authorised financial services provider (FSP 51257).