Posted on 16/7/2020
Reflective of Australia entering its first recession in nearly 30 years, labour force data showed the number of jobs fell by 228,000 (89,000 full time and 139,000 part time) in May. This follows the eye watering drop of 607,000 in April. This takes the unemployment rate to 7.1%, the highest since October 2001 and is the second biggest monthly fall in unemployment since records began in 1978. Although, this level of 7.1% is misleading, recalling that those on JobSeeker and JobKeeper programs are still counted as employed. If everyone who lost their job were counted, the real unemployment would be near 11.3%.
The U.S. economy unexpectedly added jobs in May, with more than 2.5m people newly employed according to the Labour Department – but this still follows a record drop of more than 20m in April. The added jobs bring the unemployment rate down to 13.3% from 15%. Similarly to Australia’s figures, it is important to acknowledge that the added jobs are reflective of those sectors hardest hit (hospitality and travel) benefiting from the Paycheck Protection Program, which provides funding to small businesses that keep workers on payroll, meaning people may still be technically employed, despite not working.
U.S. and China trade tensions continued to bubble away across the quarter with President Trump mentioning a “complete decoupling” from China remains an option, mulling over the idea of terminating the Phase-1 agreement. The geopolitical chess game continued with China ordering state-owned firms to halt purchases of U.S. soybeans and pork in retaliation for Trump’s announcement he would end special treatment for Hong Kong following China’s controversial security bill. Going a step further, Trump also suspended passenger flights from China-based airlines.
For Commodities, the price of Oil (Crude) surged (+91.56%) across the quarter; rallying from $20.5/b to $39.27 fuelled by OPEC (The Organization of the Petroleum Exporting Countries) extending its production cuts until August. However, the rally was caped as virus related demand concerns resurfaced with a halting in the reopening of some U.S. states as the number of infected continues to surge beyond control, particularly in Texas. Iron ore broke through USD$100 a tonne for the first time in 10 months amid supply concerns in Covid-19 ravaged Brazil continue to disrupt mining operations in the country (Brazil accounts for ~21% of global seaborne trade). Data from Bloomberg shows Australian exports surged to fill the demand gap, exporting 79.7mt in May, the highest on record. Further encouraging the price was improving demand from China, imports rose 3.9% year on year in May, bringing total demand for calendar year 2020 up 5% (remembering that a series of new infrastructure projects have been announced in conjunction with steel mills reopening).
For the Fixed Income sector, Domestic Fixed Income (+3.0%) for the quarter, outperforming their Global Fixed Income equivalents by (+1.5%), who returned a weaker (+1.5%) over the period.
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