Weekly Market Insight

Week ended: Sunday, 01 November 2020

Key Points – Week in Review

Global equitiesrecorded their weekly declines as investors grew increasingly worried about rapid increasesin new coronavirus infections across the US and Europe and after fiscal stimulus talks between Treasury Secretary Mnuchin and House Speaker Pelosi broke down on Thursday, with Mnuchin accusing Pelosi of pulling a “political stunt” by refusing to offer compromises. Markets also braced for the US presidential election as Trump and Biden campaigned intensively during the week and across the key battleground states. On the coronavirus front, Johns Hopkins University reported that the number of confirmed Covid-19 cases in the US surpassed 9mn on Thursday with a daily average of new infections hovering around 80K. Continental Europe announced more restrictions and the UK is preparing for a second nationwide 1-month lockdown. The yield on the 10-year Treasury climbed to 0.87% from 0.84% in the previous week, while volatility, measured by the Cboe Volatility Index (VIX), closed the week sharply higher reaching its highest level since June (up +38% to 38.02%). Brent crude futures declined -10.3% on the week (USD 37.46) on prospects of new lockdowns and decline in demand. The US Dollar traded stronger against a basket of major currencies (94.03), while the Euro remained under pressure as investors worried about the impact of renewed lockdowns across the continent and after the ECB set a dovish tone following its policy meeting on Thursday. Gold prices closed the week lower, at USD 1,878.81 per troy ounce.

Key Market Developments – North America

  • The major US benchmarks fell sharply on the week led by losses in the small-cap Russell 2000 (down -6.22%). All the major benchmarks with the exception of the large-cap S&P 500 Index, fell into correction territory as a downward move from their recent highs extended -10% or more.
  • Sector wise, within the large-cap index, all 11 sectors closed the week in negative territory and declines were broad-based. Utilities, a defensive sector fared best, down -3.7%, while Information Technology and Industrials fell -6.47% and -6.52%, respectively. The week marked the peak of Q3 reporting season with 180 of the S&P 500 companies reported earnings so far. As FactSet Research reports, with around 63% of the large-cap having reported for Q3, blended earnings per share shows that earnings growth is running at – 9.8%, while sales fell -2% compared with the same quarter a year ago. About 86% of reporting companies have exceeded analysts’ expectations.
  • The PCE price index rose +0.2% MoM in September, following a +0.3% gain in August, boosted by an increase in services costs. Meanwhile, goods prices fell -0.1% led by a -0.3% drop in nondurable goods. Q3 GDP accelerated at an annualized rate of +33.1% versus consensus estimate of +30.9% – rebounding from the plunge of -31.4% in Q2.
  • Personal income rose by +0.9% MoM in September, rebounding from a revised -2.5% slump in August and beating market consensus of a +0.4% increase. Personal spending increased +1.4% in the same period. Manufacturing PMI rose to 53.3, missing market estimate of 54.3, while services PMI reached 56 – beating market expectations of 54.6.
  • The number of workers filing for unemployment benefits declined to 751K in the week and below market expectations of 775K. Initial claims were at their lowest level since late March but remained well above pre-pandemic levels. Continuing claims continued to fall sharply, from 8.5mn to 7.8mn.
  • The Commerce Department reported that durable goods orders rose more than expected in September (+1.9%), with core capital goods orders reaching a six-year high.
  • The University of Michigan’s consumer sentiment was revised slightly higher to 81.8 in October, reaching the highest level since March.
  • New home sales rose to 959K in September, missing market expectations of 1025K.
  • The Bank of Canada maintained its key policy rate at the effective lower bound of 0.25%. The central bank plans to keep interest rate near zero until 2023 and will maintain its extraordinary forward guidance and quantitative easing programme.
  • The Federal Reserve lowered the barriers on its lending program for smaller businesses and will reduce a minimum loan size to USD 100K from USD 250K. The central bank will also ease restrictions on debt for companies already participating in the Paycheck Protection Program.
  • In the US presidential race, with just days to go until the 3 November election, Trump and Democratic rival Biden rallied supporters across the key states. Trump questioned the integrity of the US election again saying it would be “inappropriate” to take extra time to count the tens of millions of ballots cast by mail. He showed different approaches to the resurgent Covid-19 pandemic by urging states to reject lockdowns. Democratic challenger Biden accused Trump of surrendering to the pandemic and said the pandemic could not be stopped by “flipping a switch”.
  • The Real Clear Politics average of national polls shows that Biden leads Trump by 7.3%, down from 7.9% a week ago. Biden’s lead in the battleground states of Arizona, Florida, Michigan, North Carolina, Pennsylvania and Wisconsin declined to 3.2% from 4.1%. As it stands, Biden’s chance of election is 63.6% while Trump’s odds of reelection are 35.3%.
  • Dr. Anthony Fauci said in the week that a coronavirus vaccine will not be available before January 2021 and that a return to normal is unlikely until 2022.
  • In the week of the big tech earnings show, Alphabet rallied as much as +8% on Thursday as the company’s ad sales bounced back sharply from a pandemic slump. Facebook slipped nearly -3% amid a user decline and “a significant amount of coronavirus related uncertainty,” though revenues were up more than 20% despite ad boycotts. Amazon also fell -1.5% after predicting USD 4bn in pandemic costs next quarter, while Apple declined -4% as iPhone sales missed estimates due to customers holding off on purchases before the release of the iPhone 12.

Key Market Developments – Europe

  • Equity markets across Europe ended the week sharply lower as investors grew increasingly worried about rapid increases in new coronavirus infections and double-dip recessions across the region. The Europe 600 and the UK’s FTSE All-Share Indexes declined – 5.56% and -4.81%, respectively.
  • Preliminary data compiled by Eurostat show the Eurozone economy rebounded more strongly than expected in Q3 with GDP growing +12.7% after contracting -11.8% in Q2. Year-on-year, growth shrank by -4.3%, easing from a record contraction of -14.8% in the Q2. Across the Euro block, all major economies posted record GDP expansions in Q3: France +18.2% vs -13.7%, Spain +16.7% vs – 17.8%, Italy 16.1% vs -13.0% and Germany +8.2% vs -9.8%.
  • Eurozone CPI fell -0.3% YoY in October for a second consecutive month and in line with economists’ expectations. Spanish CPI declined by -0.9% YoY, missing economists’ expectations of -0.6% decline.
  • The Eurozone consumer confidence indicator was confirmed at -15.5 in October, the lowest since May, amid a resurgence in coronavirus cases. The economic sentiment was unchanged at 90.9 in October 2020, beating market expectations of 89.5 but remaining well below pre-pandemic levels.
  • German Ifo business climate index reached 92.7, closely missing market expectations of 93.
  • The ECB left monetary policy unchanged during its October meeting. Policymakers took a wait-and-see approach until a new round of economic projections is unleashed in December. This is when a thorough reassessment of the economic outlook and the balance of risks will be made. The central bank’s main refinancing rate was held at 0% while the deposit rate remained at a record low -0.5%.
  • The ECB announced it will recalibrate its instruments as appropriate, to respond to the unfolding situation and to ensure that financing conditions remain favorable to support the Eurozone economic recovery. The central bank stated that it would “carefully assess the incoming information, including the dynamics of the pandemic, prospects for a rollout of vaccines, and developments in the exchange rate.”
  • The ECB will continue its purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of EUR 1.35tn.
  • The BoE’s request in March for banks to restrain dividend payments will not change the number of payouts over the longer term, according to its executive director for financial stability.
  • The EU chief negotiator Barnier resumed talks in London with his British counterpart as the two sides tried to strike a last-minute trade agreement less than 10 weeks before the UK leaves the EU. He said “time is very short” to bridge the significant remaining gaps on key issues in negotiations. The EU Commission President Ursula von der Leyen said Brexit talks are making good progress, with two main sticking points left to be resolved: level playing field and fisheries. France’s Macron and Germany’s Merkel ordered their countries back into lockdown as a massive second wave of coronavirus infections threatened to overwhelm Europe and authorities struggled to contain the resurging pandemic. In a televised speech, Macron ordered a nationwide lockdown until December, with limitations on outdoor movement and mandatory working from home.vGermany announced sweeping restrictions, shutting bars, restaurants, and theaters for a month. Italy ordered bars and restaurants tovstop serving in the evening and closed gyms, swimming pools, cinemas, and theaters. Greece ordered Thessaloniki, its second-biggest city, and two other regions to move into lockdown, while Spain extended the state of emergency for six months, enabling the regions to curb residents’ mobility, impose curfews, and shut their borders.

Key Market Developments – Asia-Pacific/Emerging Markets

  • Stock markets across Asia-Pacific ended the week in negative territory. Mainland Chinese equities, measured by the CSI 300 Index, retreated -0.48% on the week, the Hang Seng Index fell -3.25%, while Japan’s Nikkei 225 Index declined –2.29% in the same period.
  • China’s official NBS manufacturing PMI came at 51.4 in October, little-changed from a seven-month high of 51.5 in the previous month. The latest reading pointed to the eighth straight month of growth in factory activity, amid ongoing recovery in the economy from the pandemic shock. China’s official NBS non-manufacturing PMI increased to 56.2 in October from 55.9 a month earlier, signaling the fastest growth in the service sector since October 2013.
  • Retail sales in Japan fell -8.7% in September YoY, marking the seventh straight month of declines. Industrial output increased +4% in the same period, beating market expectations of +3.2%.
  • The unemployment rate in Japan remained unchanged at 3.0% in September compared to the prior month, missing market expectations of 3.1%. This is the highest jobless rate since May 2017.
  • Australia CPI grew 1.6% in Q3 QoQ, beating economists’ expectations.
  • As expected, Japan’s BoJ kept interest rates unchanged at the policy meeting in October, with the short-term policy rate set at -0.1%. The central bank said it will continue purchases of 10-year Japanese government bonds to keep the longer-term benchmark close to 0%. The central bank lowered its growth outlook for the remainder of fiscal year 2020 saying that a recovery in demand for services may take longer than it forecasted in July. The central bank also noted that inflation expectations remain to be negative in the near term as a result of the pandemic.
  • China’s PBoC injected CNY 120bn into financial system via seven-day reverse repos at an interest rate of 2.2%. The move was intended to maintain reasonably ample liquidity in the banking system.
  • Japan’s government is considering a Yen 10tn extra budget to offset some of the economic drag resulting from the pandemic.
  • China’s Communist Party held its fifth plenum in Beijing from 26-29 October during which party leaders outlined their 14th five-year plan for the country’s longer-term economic and social development. Party leaders released modernization targets for the next 15 years until 2035, including per capita GDP. The ruling elite also announced it will prioritize domestic demand expansion, upgrading supply chains, and own development of the country’s key technologies as ways to hedge against external uncertainties.
  • The US and India signed an agreement that would allow New Delhi to access US satellite data crucial for targeting missiles and other military assets.
  • Japan and the US began air, sea and land exercises around Japan in a show of force and amid increased Chinese military activity in the region.
  • Israel and Lebanon held a second round of talks over their disputed sea border.
  • Turkish President Erdogan said it was time for a realistic proposal about a two-state solution on the divided island of Cyprus.
  • Israel announced its delegation will travel to Sudan after the two countries agreed to take steps to normalize relations.

Key Points – Week Ahead

  • In the week ahead, important macro data releases in the US include non-farm payrolls, ISM PMI surveys, factory orders, weekly initial jobless claims and balance of trade data. The Federal Reserve will decide on monetary policy decision. The US presidential election takes central stage next week, with Joe Biden leading the polls and early voting hitting record levels amid the coronavirus pandemic.
  • In Europe, Eurozone will release retail sales, Markit manufacturing and services PMIs. Markets will closely watch Germany’s industrial output, factory orders and manufacturing PMI. The UK will publish the latest construction PMI, and Halifax house price index. The BoE will decide on monetary policy decision.
  • In Asia-Pacific, China will release Caixin manufacturing and service sector PMIs and exports/imports and trade balance. Japan will publish monetary policy meeting minutes, while Australia will release balance of trade data. Australia’s RBA will decide on monetary policy decision.
  • In emerging markets, India and South Africa will release the latest Markit manufacturing PMIs and Brazil will publish industrial production and inflation rate. Indonesia will release the latest inflation rate and Q3 GDP figures


Sources of information and data: Bloomberg; Financial Times; Reuters.com; CNNMoney.com; BBC Business News; The Wall Street Journal. The material in this document has been prepared by Patronus Wealth Privé (DIFC) Limited for general information and illustrative purposes only and does not constitute any form of recommendation or investment advice. The material in this document is intended for recipient’s use only and any disclosure, copying, distribution or any action in reliance on its contents is prohibited. The historical performance is not meant to forecast, imply or guarantee the future performance. The information presented in this document have been obtained from sources generally believed to be reliable. Patronus Wealth Privé (DIFC) Limited makes no representation as to its accuracy or completeness and accepts no liability for any loss arising from the use of material in this document.

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