Hawkish Fed fears eased after jobless claims rise

Bad news is good news for markets, with a rise in jobless claims easing fears after yesterday’s surprisingly hawkish FOMC meeting. Meanwhile, airlines have benefitted from rumours that the government could relax quarantine rules for those visitors with two vaccine jabs. 

• Mixed start to US trade highlights difficulty knowing good from bad 
• Rise in jobless claims help to alleviate fears around the Fed’s hawkish stance 
• UK airlines outperform, with rumours the government could relax quarantine rules 

A volatile start to the US session has highlighted the difficulties faced by markets, with a rare rise in jobless claims highlighting how traders are unsure how economic surprises should be treated. Yesterday’s FOMC meeting served as a rude awakening for the markets, with the presumption that monetary policy would remain accommodative in spite of rising inflation being severely undermined. If a healthy minority of members are willing to raise rates in 2022, it begs the question of exactly how long those same members would wait before they see tapering as being necessary. Nonetheless, today’s surprise rise in initial and continuing jobless claims does undermine the increasingly hawkish stance adopted by many Fed members. While GDP forecasts may have been raised by the FOMC, the first jobless claims since April does highlight how we could be in for a road bump in the economic recovery. For the most part this is likely to be a blip within a positive in jobs. However, with markets worrying that strong economic data could push the Fed towards tightening, we are starting to see markets take on a ‘bad news is good news’ approach. 

UK airlines have enjoyed a welcome boost on the rumour that the UK government may allow fully vaccinated visitors from amber countries without the need to quarantine. With Portugal back in the amber list, the summer season is whittling away without any notable surge in bookings for hard-hit airlines. However, today’s news offers a glimmer of hope that we could see a major uptick in demand for flights as the 30 million people with both doses could take the advantage of a less stringent travel policy. Undoubtedly the quarantine rule made it almost impossible for many to fly given that it would force many to lose an addition 5-10 days of work if they are unable to work remotely. However, the airline sector could look attractive once again should the government take steps to help save the summer for many.