Market Commentary 19th October 2020 from Charlie Hancock

Posted by melaniebond

Market Commentary 19^th October 2020

Equity Indices

The FTSE 100 index declined by 1.61% last week and the FTSE 250 index moved 1.39% lower.

Investor sentiment was negative for much of the week, with the main driver being concerns around a slowing economic recovery. Unemployment data released by the Office for National Statistics on Monday showed a sharp jump in redundancies during the summer months, with further job losses expected throughout the winter.

On Monday afternoon, Prime Minister Boris Johnson announced further regional restrictions to slow the rise in coronavirus cases, which added to the gloomy sentiment. Bars and restaurants in Liverpool were ordered to close, adding to the hospitality sector’s woes. Pub chain Marston’s PLC saw their share price decline by 16.33% across the week as a result, with the company announcing on Thursday that they are cutting 2,150 jobs.

Europe

European indices were also in the red last week, with the broad FTSE All World Index – Europe ex UK seeing a 1.45% decline. Germany’s DAX index lost 1.09% across the week.

Concerns around the economic impact of further coronavirus restrictions weighed on markets. A night-time curfew was implemented in major French cities, whilst Germany ordered bars and restaurants in high risk areas to close early.

Eurozone industrial production data showed that the pace of the recovery in the continent’s manufacturing sector slowed considerably in August. Production in Germany was 11.2% lower than in August 2019, highlighting the economic impact of the coronavirus pandemic.

The S&P 500 and Dow Jones Industrial Average indices managed to hold ground across the week, rising 0.19% and 0.07% respectively. The NASDAQ 100 index rose by 1.08%.

Whilst data for US retail sales in September was encouraging, the figure for US jobless claims during the previous week was higher than expected, adding to concerns of a slowing economic recovery. Diminishing hopes of a fiscal stimulus deal being passed before November’s election also added to investor concerns, with conflicting messages from leading republicans and democratic House Speaker Nancy Pelosi.

Asia

Asian equity markets were mixed last week, with Japan’s Nikkei 225 index posting a 0.88% decline and China’s Shanghai Composite Index gaining 1.96%. The broad FTSE All World Index – Asia Pacific declined by 0.47%.

The recent trend of encouraging economic data from China continued, with data released last week showing that exports in September were higher than expected. Vehicle sales during September were also stronger than anticipated, rising for the sixth month in a row. The International Monetary Fund (IMF) revised their 2020 Chinese economic growth forecast from 1.0% to 1.9%, with China expected to be the only G20 economy to expand in 2020.

Reports last week suggested that the Japanese government is drawing up plans for another fiscal stimulus package to be implemented at the end of the year. It is expected that the measures will include subsidies to encourage domestic travel as well as relief for struggling businesses.

Bond Yields

The 10-Year UK Gilt yield declined from 0.28% to 0.19% across the week, with investor nervousness driving increased purchases of government bonds.

Europe

The 10-Year German Bund yield sunk further into negative territory, moving from -0.53% to -0.62% across the week. With rising coronavirus cases across the continent driving concerns amongst investors, the security of German government debt was in high demand.

The 10-Year Treasury yield declined from 0.79% to 0.76%. The yield did reach as low as 0.73% during the middle of the week, before encouraging news on a vaccine being developed by Pfizer helped to lift yields at the end of the week.

Currency

GBP / USD – Current 1.2915 Previous 1.3036

GBP / EUR – Current 1.1023 Previous 1.1027

The Pound declined by 0.93% against the US Dollar, but was broadly flat against the Euro at -0.04%.

After reaching his deadline for a deal to be reached by the 15^th October, Boris Johnson announced that the country should prepare itself for a no deal exit from the EU at the end of the year. Currency traders largely dismissed the Prime Minister’s statement, with many expecting that a free trade deal will be reached in the coming months.

Commodities

Gold

The Gold spot price fell by 1.12% across the week, reaching $1,908.71 per ounce. With expectations of a US fiscal stimulus deal being reached ahead of the election fading last week, investors reduced their exposure to Gold. The precious metal is typically viewed as a hedge against inflationary fiscal policies.

Oil

Oil prices were broadly flat, with the Brent crude spot price gaining 0.19% to reach $42.93 per barrel. The relative calm in oil prices last week suggested that expectations of further coronavirus restrictions in Europe had already been priced in by oil traders.

The Church of England made headlines last week after ditching their shares in US oil giant, ExxonMobil. The Church’s pension board said that Exxon’s plans to reduce emissions were not consistent with the Paris Agreement.