Weekly Market Insight
Week ended: Sunday, 18 October 2020
Key Points – Week in Review
Global equities were mixed on the week as investors grew more cautious on prospects of a stimulus package being passed in the USbefore November election. A rapid growth in coronavirus cases in the US and across Europe weighed on sentiment too, after France’s Macron imposed new strict curfews in Paris and eight other large French cities, and the UK govevernment announced stricter efforts to mitigate the spread of the virus. The yield on the 10-year Treasury eased to 0.76% from 0.78% the previous week, while volatility, measured by the Cboe Volatility Index (VIX), closed Friday at 27.41%. Brent crude futures for December delivery fell in the week on concerns that the overall demand will decline on rising Covid-19 cases, and after the International Energy Agency said that if the pandemic persists, oil demand will not reach pre-pandemic levels until 2025. The value of the US Dollar against a basket of major currencies, closed the week at 93.68. The Euro depreciated against the US dollar towards EUR/USD 1.17 handle as a second wave ofcoronavirus infections and new lockdown restrictions continued to threaten the Eurozone recovery. Gold prices traded mixed around the flatiline of USD 1,900 for the most of the week amid steady US dollar and lack of progress in the US fiscal stimulus talks.
Key Market Developments – North America
- US equites ended the week in positive territory. The tech-heavy Nasdaq led the gains (up +0.79%), while the small-cap Russell 2000
Index trailed (down -0.23%). Nasdaq closed lower on Friday after Senator Hawley, an outspoken critic of large tech companies, said
he would go to the Senate floor to try and pass a big tech bill next week. Sector wise, within the large-cap S&P 500 Index, Industrials
outperformed, up +1.10%, while Energy shares fell -2.10% - Retail sales jumped +1.9% in September beating consensus estimates of +0.7%, As data showed, vehicles, home improvement and
sporting goods were standout categories. The University of Michigan’s consumer sentiment increased to 81.2 in October from 80.4
the month earlier but still remained below pre-coronavirus levels. - Industrial production fell -0.6% in September, its first decline in five months, and missing market expectations of +0.5% growth. The
production remained 7.1% below its pre-pandemic level as manufacturing output decreased -0.3% while the output for utilities
dropped -5.6% - Import prices went up +0.3% MoM in September, its fifth consecutive monthly gain, and in line with market expectations. Export
prices rose +0.6% MoM in September and above market expectations of a +0.4% gain. It was the fourth straight monthly rise in export
prices, driven by higher cost of both agricultural and non-agricultural exports - § Initial jobless claims reached 898K in the week ended 10th October, the highest level in almost two months and well above market
expectations of 825K. Continuing claims however, offered a better picture, falling from 11.2mn to 10.1mn in the same period. - Canada’s unemployment rate improved in September falling to 9.0% from 10.2% recorded the previous month.
- The Federal Reserve Vice Chair Clarida said it could take a year for GDP growth to return to its prepandemic level. The Fed’s Quarles
urged close monitoring of consumer loans amid stimulus uncertainty - Negotiations over a fifth coronavirus relief package continued in the week between Treasury Secretary Mnuchin and House Speaker
Pelosi. Trump has raised his offer for a new fiscal stimulus package to a USD 1.8tn in a bid to strike a final compromise with
congressional Democrats, but a gap of around USD 400bn remains, with Pelosi seeking a total of USD 2.2tn. Senate Republicans are
reluctant to back a plan negotiated by Mnucin and Pelosi with Senate Majority Leader McConnell backing a more limited package of
around USD 500bn. Mnuchin remarked on Wednesday that “getting something done before the election and executing on that
would be difficult.” - On Thursday, Biden and Trump held their virtual debates on ABC and NBC networks, respectively. Biden criticized Trump’s “panicked”
response to the Covid-19 pandemic, while Trump defended his handling of the crisis. Trump’s electoral campaign announced a
number of campaign rallies since his bout with Covid-19, while Biden plans to travel to Pennsylvania and Florida as the fight for the
White House focuses on two of the biggest swing states - The US confirmed its first case of Covid-19 reinfection casting doubts about immunity from the coronavirus. Eli Lilly paused a
government-sponsored trial of its antibody therapy and enrolment of participants in a clinical trial due to a potential safety concern.
This comes less than 24 hours after Johnson & Johnson said research on its experimental vaccine was put on hold after a participant
unexplainly fell ill. - US banks kicked off the Q3 reporting season with JPMorgan, Goldman Sachs, Citigroup, Bank of America, Wells Fargo and Morgan
Stanley, all reporting their quarterly results. As data from FactSet Research show, so far, around 10% of the constituents of the S&P 500
Index have reported their Q3 earnings, with YoY earnings growth running at -18.4%, while YoY sales are seen -3.27% lower compared
to the same quarter last year - Apple launced a redesigned line-up and four new versions of the iPhone 12 with faster 5G connectivity. The company promised to
usher in a “new era” for its flagship product. - Ford delayed the launch of its plug-in hybrid Escape SUV to 2021 after thousands of similar vehicles in Europe were recalled for
problems involving fires while recharging.
Key Market Developments – Europe
- Equity markets across Europe ended the week largely lower as alarming rise in coronavirus infections, lingering Brexit uncertainty and
fading hopes for US fiscal stimulus weighed on investor sentiment. The Europe 600 and the UK’s FTSE All-Share Indexes declined –
0.77% and -1.56%, respectively - As reported by Reuters, the seven-day average of newly reported coronavirus cases in Europe has topped 100K with case count
overtaking that of the US. In response, authorities across the continent resorted to tighten restrictions with France introducing nightly
curfews from 9pm until 6am in Paris and eight other large French cities. In the UK, the government introduced a three-tier system
that will see different parts of the country placed in different categories dependent on rates of infection, while in Spain, the central
government has invoked powers to overrule local authorities on imposing limits on activity to contain the virus’ spread. Both Czech
Republic and the Netherlands imposed partial lockdowns, while Germany announced limits on the number of people at private
gatherings and a curfew for bars and restaurants in areas deemed hotspots. Northern Ireland said it would enter four-week lockdown
on Friday, closing schools, pubs and restaurants as part of new restrictions - The Eurozone CPI declined -0.3% in Semptember YoY – the steepest decline since April 2016. Prices fell for both energy and nonenergy industrial goods. At the same time, services inflation slowed to 0.5% from 0.7%. Consumer prices in Germany declined by –
0.2% (its largest decrease since January 2015) and France’s CPI declined by -0.5% in the same period. - Industrial output in the Eurozone rose by +0.7% in August MoM, missing market expectations of a +0.8% increase. The ZEW indicator
of economic sentiment dropped by 21.6 points in October to 52.3, the lowest level since May. - The Eurozone’s trade surplus widened to EUR 14.7bn in August MoM, but below market expectations of a EUR 15.1bn
- The UK economy struggled in August with GDP increasing by +2.1% from the month earlier – not even half the median forecast in
data collected by Reuters – and the slowest increase since the economy began to recover in May - The unemployment rate in the UK rose to 4.5% in August from 4.1% in July
- The ECB Chief Economist Lane warned that the Eurozone economy faces a “tougher phase” of the economic recovery as coronavirus
cases surged across the economic block putting a question over the extent of localized lockdowns. President Lagarde noted the
central bank has an arsenal of economic stimulus “on standby” amidst a surge of coronavirus cases in Europe. Lane said the ECB is
considering a Fed-style inflation target, which would allow price levels to overshoot the central bank’s 2% target to offset lengthy
periods during which inflation has undershot that level. - The ECB moved a step closer to exploring the creation of a virtual currency, after Lagarde said she was “very seriously considering” a
digital euro. - The BoE’s Governor Bailey does not think the economy is going through V-shaped recovery, because of a probable second wave of
Covid-19 - The FT reported that the BoE has begun a fact-finding mission to see whether the UK banks could cope if the central bank wanted to
introduce negative interest rates to support the economy. On Monday, the BoE wrote to banks asking them about their readiness to
deal with a zero or negative bank rate saying the step was to “assess the appropriateness of a negative official bank rate alongside all
of its other tools” - The EU continued to reject the idea of a free trade deal with the UK as both sides remained divided on key issues such as fishing
rights, corporate governance and fair competition. The EU Commission president Ursula von der Leyen announced that negotiations
would continue next week while the EU’s Chief Brexit negotiator Barnier noted the EU is ready for Brexit talks “until last possible day”
urging his British counterparts not to walk out of trade talks as deals on security and fishing are possible over the next two weeks - Johnson told the head of the EU Commission that he was disappointed there had not been more progress in Brexit trade talks. He
urged UK businesses to prepare for no deal Brexit after negotiations stalled and as the self-imposed 15th October deadline for the UK
to leave the EU if no deal was reached expired. Johnson’s spokesman said that trade talks with the EU were over unless the bloc
changed its negotiating position. French Foreign Minister Le Drian said a no-deal Brexit looked “very likely” based on the state of
negotiations between the EU and the UK. - The EU won World Trade Organization permission to impose tariffs on USD 4bn worth of US goods in retaliation against subsidies for
Boeing. The EU is expected to hold introduction of tarrifs until after the US presidential election next month. - The EU will impose duties of up to 48% on imports of aluminum from China over an investigation into unfair prices from Chinese
producers - France will go ahead with plans to collect its contentious digital services tax mid-December, keeping Europe on course for a trade
battle with the US over the taxation of tech giants. - Moody’s Investors Service downgraded the UK’s sovereign credit rating to Aa3 from Aa2 and assigned a stable outlook, citing that
the UK’s economic strength has diminished the last downgrade, the country’s fiscal strength has eroded as general government debt
has risen further as a result of the pandemic, and the weakening in the UK’s institutions and governance that the rating agency has
observed in recent years. - Investors buying Italy’s latest debt sale will get no payment, as the country capitalizes on its record-low borrowing costs. Italy’s
borrowing costs moved negative for the first time ever - Roche will launch laboratory SARS-CoV-2 antigen test to support high-volume testing of suspected Covid-19 patients.
- AstraZeneca’s antibody medicine against Covid-19 is advancing into the last stage of clinical tests and will be administered to more
than 6,000 people starting in the next few weeks.
Key Market Developments – Asia Pacific/Emerging Markets
- Stock markets across Asia-Pacific ended the week mixed. Japan’s Nikkei 225 Index was lower -0.89%, while mainland Chinese equities,
measured by the CSI 300 Index, and Hong Kong shares, gained +2.36% and +1.81%, respectively. Total value of stock market in China
has climbed to a record high of more than USD 10tn, boosted by strength of country’s economic recovery following the Covid-19
pandemic - China CPI rose by +1.7% YoY in September, the least in 19 months, with food inflation hitting its lowest in 16 months. Producer prices
declined by -2.1% YoY in September, posting the eighth straight month of fall in factory prices - Banks in China extended CNY 1.9tn in new loans in September, beating market forecasts of CNY 1.7tn. It is the highest reading in six
months and much better than CNY 1.69tn a year earlier. - Car sales in China increased +12.8% YoY to 2.57mn in September, the sixth straight month of increase, as the vehicle market comes
off lows hit during the coronavirus lockdown. Sales of trucks, vans and other commercial vehicles, which account for around a quarter
of overall market, surged +40% while sales of passenger vehicles were up +8%. China’s exports rose +9.9% YoY in September, while
imports surged +13.2% in the same period - China’s PBoC injected a CNY 500bn one-year medium-term lending operation and kept the rate unchanged at 2.95% for the sixth
straight month, in a move aiming to maintain sufficient liquidity of the banking system. - Japan industrial production increased by +1.0% in August from the previous month, compared with a preliminary estimate of a +1.7%,
signaling a slowdown in economic recovery. The largest contributors to the growth were motor vehicles, iron, steel, and electronic
parts and devices - The BOJ’s latest tankan survey for October showed the manufacturers’ sentiment index rose to -26 points from September’s -29 while
the service-sector index was lifted to -16 from -18. The reading showed that economic activity was gradually recovering, while
remaining deeply negative - China’s government sold US dollar debt directly to US buyers for the first time, with a USD 6bn offering drawing record demand
- The Chinese government said said Beijing and members of ASEAN should work together to remove “external disruption” in the South
China Sea. This comes on the back of the US’s action to block Hong Kong users from some government websites and limiting their
access to critical economic data – another incident that could spark tensions in US-China relations - China’s Xi said China will not stop reforms and opening up of the country, but it must stick to supply-side structural reforms and rely
more on its domestic economy. - North Korea unveiled previously unseen intercontinental ballistic missiles at an unprecedented predawn military parade showcasing
the country’s long-range weapons for the first time in two years - Lebanon and Israel launched talks to solve a lingering dispute over their maritime border running through potentially offshore gasrich Mediterranean waters
- National Commercial Bank, Saudi Arabia’s largest lender by assets, agreed to buy rival Samba Financial Group for USD 15bn.
- Abu Dhabi National Oil Company (ADNOC) will look at expanding into clean energy, with investments in hydrogen seen as an area
of interest. - The IMF raised its 2020 global growth forecast to -4.4%, up from -5.2% outlook forecasted in June. The IMF now expects advanced
economies to contract -5.8% instead of -8%, while GDP is expected to decline -3.3% in emerging markets – about the same as the –
3.5% drop forecasted in June.
Key Points – Week Ahead
In the week ahead, important macro data releases in the US include flash PMI surveys, building permits and housing starts, existing home sales and initial jobless claims. The Q3 earnings season continues with companies such as IBM, Netflix and Tesla reporting their results. Market reaction to the final US presidential debate between Trump and Biden on Thursday will be closely watched.
In Europe, Eurozone will release the latest consumer confidence and flash PMI surveys. The UK will publish inflation data, retail sales and flash PMI surveys.
In Asia-Pacific, China will release Q3 GDP growth rate, industrial production, retail sales and unemployment rate. Japan will publish trade balance, flash PMI surveys and the latest inflation data. China’s PBoC will be deciding on monetary policy. In emerging markets, India will publish foreign exchange reserves and deposit growth data.
Disclosures
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. Patronus Wealth Privé (DIFC) Limited is regulated by the DFSA.
