Market Commentary 21st September 2020 From Charlie Hancock

In the early part of the week, investor sentiment was driven by positive economic data from China, news of acquisition bids for UK based companies Arm Group and G4S, as well as hopes for a coronavirus vaccine. In the latter part of the week, investor spirits were dampened by the US Federal Reserve keeping policy on hold with no hints of further stimulus.

Shares in online supermarket, Ocado, rose by 24.32% across the week, aided by the company stating that its switch to M&S groceries from Waitrose products had been successful. Whilst Ocado has just a 1.7% share of the UK grocery market, it is now valued at £21 billion, putting it slightly behind the UK’s largest supermarket, Tesco, which has a 26% market share and is valued at £21.5 billion.

It was a difficult week for European automakers, with data showing that new car registrations fell by 19% in August in comparison to the same period in 2019. Volkswagen’s share price declined by 4.39%, whilst French manufacturer Renault saw a 6.78% fall.

Data for retail sales in the US during August was weaker than expected, prompting concerns around the economic recovery slowing. The main turning point for investor sentiment last week came on Wednesday following the Federal Reserve’s policy meeting. Whilst the Fed kept rates on hold and signalled that they would remain unchanged for at least three years, investors appeared to be hoping for some mention of further monetary stimulus measures.

The central bank’s chairman, Jerome Powell, suggested that there would be no expansion of the current quantitative easing (QE) programme. The reaction to the Fed’s comments was negative, with a sell off in equities occurring during Thursday and Friday.

Retail sales during August rose by 0.5% in comparison to the previous year, helped by new car sales increasing at a rate of 12% year-on-year. The data, particularly on car sales, indicates that consumer confidence in China is healthy. Official industrial production data showed a 5.6% year-on-year increase during August, signalling that factory activity is continuing to recover strongly.

The Bank of England (BoE) voted to leave interest rates on hold at 0.1% last week, whilst stating that negative interest rates remain under review. Official inflation data released on Wednesday showed that inflation was very weak during August, with the Consumer Prices Index (CPI) rising by 0.2% on an annualised basis.

Andrew Bailey, the BoE’s governor, attributed the weakness to lower oil prices, a temporary VAT cut in the hospitality sector and subsidised restaurant prices under the government’s Eat Out to Help Out scheme.

The 10-Year Treasury yield moved from 0.67% to 0.70% across the week.

GBP / EUR – Current 1.0908 Previous 1.0806

The Pound regained some ground last week, rising by 0.95% against the US Dollar and 0.94% against the Euro.

Although the Pound weakened slightly in the wake of the BoE’s policy meeting, positive rhetoric on a UK-EU trade deal drove Sterling higher across the week. The president of the European Commission, Ursula von der Leyen, stated that she is convinced a trade deal is still possible .

Whilst often referred to as a ‘safe haven’ asset, Gold did not appear to be a beneficiary of the late week sell off in equities, with the spot price falling in tandem with equity indices.