US recovery stalling after historic Q2 collapse

Markets are on the back foot yet again, with US data showing that the Q3 rebound is already faltering after a huge Q2 decline. Meanwhile, a substantial bad loan provision from Lloyds highlights the worries over a second wave of job losses in the UK.  
 

• Market weakness builds, as the economic recovery starts to stall 
• Jobless figures just as worrying as historic US GDP figure  
• Lloyds decline reflects expectation of further job losses 

Stocks throughout Europe and the US are on the back foot today, with fears once again resurfacing that the US recovery may already be coming to an end. While the headlines will be dominated by the fact that the US has just suffered their sharpest contraction modern history, the jobless numbers were perhaps just as worrying for investors. With initial jobless claims rising for the second consecutive week, we have also finally seen the continuing claims figure turn higher for the first time since May. With a potential sharp cut to the enhanced federal unemployment payments in the offing, there is a strong possibility we will see further economic weakness as the safety net gradually becomes smaller and smaller. From a UK perspective, the latest redundancy laws do little to boost confidence that the furlough scheme will be extended beyond October. With little chance of a seamless transition between the furlough and vaccine in October, the government appears to be laying the ground for another raft of job losses later this year. 

Lloyds Banking Group lead the FTSE 100 losses today, with the stock down over 7% after setting aside a worrying £2.4 billion fund to cover bad loans they estimate will be forthcoming thanks to the current pandemic-led collapse. Unfortunately today’s new redundancy laws do little to shake the feeling that huge job losses are around the corner, with the jobless more likely to renege on mortgage payments and other major borrowing facilities. Ultimately banks sentiment reflects the overall economic picture, and that fact is worrying as Lloyds closes in on the lowest level in over seven years.