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    Weekly multi-asset update: November

    Weekly multi-asset update: November

    27 November 2020 Multi-asset
    Week to 27 November, 2020


    • European service PMIs fall sharply into contraction, while US manufacturing and services more resilient
    • President Trump moves a step closer towards conceding, as Joe Biden makes Janet Yellen his Treasury Secretary
    • Outlook: further PMI releases, Brexit negotiations and a number of important central bank speakers

    Market and economic review

    This week saw the release of flash November PMIs. With recent restrictions imposed in many countries, a negative impact on economic activity was expected. The composite PMI in the eurozone fell to 45.1 in November from 50.0 in October, marginally below market consensus. The divergence between manufacturing and services continued, as a direct result of the restrictions put in place to contain the spread of the virus. Manufacturing only fell slightly to 53.6 (from 54.8 in October), whereas services plummeted to 41.3 (from 46.9 in October). At a country level, robust manufacturing remains a key source of support for the German economy: the manufacturing PMI printing at 57.9 (down from 58.2 last month) whilst services dropped to 46.3 (from 49.5). In France, the composite print came in at 39.9, down from 47.5 in October. Whilst a meaningful drop was expected in light of the severe restrictions imposed across the country, this was significantly lower than the market consensus. 

    Elsewhere, it was a similar story in the UK with manufacturing rising to 55.2 from 53.7, and services falling from 46.9 to 41.3, resulting in an overall composite of 47.4 (down from 52.1 last month). Issues in the UK are of course two-fold, not only dealing with a national lockdown, but also with Brexit. On the former, the lockdown in England is due to lift on 3 December, with regional restrictions being applied in a tiering system across the country depending on a myriad of virus metrics. Onto Brexit, where at the time of writing there has been no agreement between the UK and the EU, where the three points of contention seem to be the level playing field, fisheries and governance. According to news reports, after a period of isolation for Michel Barnier, face to face talks are due to restart this coming weekend.

    Staying with the UK, and Chancellor Rishi Sunak announced record borrowing for 2020. In his one-year spending review, Sunak stated that the UK was on target to borrow almost £400bn this year, with the budget deficit likely to rise to its highest level in peacetime. He forecasted a fall in GDP of 11.3% in 2020 – the largest fall ever recorded – followed by a rise of 5.5% in 2021. Although no specific plan of action to tackle the high levels of gross debt or the deficit was mentioned, the chancellor had already announced a freeze in public sector wages.

    Moving onto politics, and the uncertainty surrounding the next US president faded somewhat this week, with President Trump saying he will relinquish power if the Electoral College affirms Democrat Joe Biden’s win. However, he did also add that he may never formally concede. In a potential sign of things to come, Joe Biden announced that ex-Federal Reserve chair Janet Yellen would be his Treasury Secretary. Her prior record suggests she has a dovish stance towards monetary policy and favours more fiscal stimulus, something that the Federal Reserve have been calling for to lift the US out of its current crisis.

    Finishing on the latest vaccine news, where we heard news on the Oxford/AstraZeneca candidate this week. The vaccine’s overall efficacy was recorded at 62-70% in trials that spanned Brazil and the UK; however, for 3,000 people in the UK who were given a lower dose regime, partly by accident, efficacy rose to 90%. AstraZeneca’s CEO suggested that the company was likely to conduct a further trial to test the vaccine’s efficacy, however this should not affect the timeline for approval and rollout of the vaccine across the UK and Europe.


    As we move into December next week, more November PMIs will be released, having seen a meaningful deterioration in the flash readings out of Europe this week. Also from the data docket, the US jobs report for October will be released on Friday, where the consensus expectation is for the unemployment rate to fall to 6.8%. More broadly of course focus will remain on whether stricter lockdowns are resulting in lower virus case numbers, as well as potential progress on the vaccine front.

    Elsewhere, Brexit negotiations will remain in the spotlight as we approach the 31 December deadline for the end of the transition period. As mentioned above, there remains key differences in opinions between the two parties so it remains to be seen whether a deal will be possible.

    There are a number of important central bank speakers next week, including Fed Chair Jerome Powell and Treasury Secretary Mnuchin appearing before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday. We will also hear from European Central Bank President Christine Lagarde who will be speaking at the European Policy Centre Forum. Lastly, the Fed’s Beige Book will be released on Wednesday. 

    Week to 20 November, 2020


    • Further positive vaccine news as Moderna reports 94.5% efficacy
    • COVID-19 cases continue to surge across Europe and the US, whilst areas of Asia show concerning rises
    • The US weekly jobless numbers reverse last week’s good news, while October’s industrial production is more upbeat
    • Outlook: Flash PMIs the key data highlight as market digests fall in November activity

    Market and economic review

    Just like last week, Monday brought positive news on a COVID-19 vaccine. Moderna reported that their candidate has a 94.5% efficacy rate, and unlike the Pfizer/BioNTech vaccine which needs to be transported at -70 degrees Celsius, it can be moved at ‘just’ -20C. However, unlike last week, the market reaction to this announcement was relatively muted, as it appears that these results were somewhat priced in following the announcement the previous week (given both vaccines use similar technology). Later in the week, Pfizer and BioNTech reported the final analysis of its phase three trial, where the vaccine was deemed to be 95% effective against the virus, catching up with Moderna, and rather importantly, it also has an efficacy rate of 94% for those above 65 years. Whilst we are still some way from these vaccines being mass produced and widely distributed, these high efficacy rates provide hope that governments can prioritise inoculation of the elderly (deemed as the most vulnerable) and society can take significant strides towards returning to pre-COVID-19 life.

    The news could not come at a better time, with the virus continuing to spread at an alarming rate. Whilst in recent weeks it has been widely reported that Europe and the US are experiencing high case numbers, there are now also signs of a pick-up across Asia. It was reported that South Korea may increase its social distancing rules, whilst Tokyo’s governor said virus containment measures are likely to be enhanced to combat the rising infection rate.

    Moving on from the pandemic, to negotiations between the United Kingdom and the European Union, where mid-week headlines suggested there was the possibility that a deal on the UK’s exit from the Union could be agreed soon, even as early as next week. However, on Thursday talks were temporarily suspended as a member of the team of Michel Barnier, the EU’s chief Brexit negotiator, tested positive for COVID-19. Whilst it seems progress is being made on the matter, a senior official has suggested that the two sides have yet to bridge their differences over a number of issues, including fishing and the governance of a potential trade agreement. Still one to follow as we edge closer to the post-Brexit transition period at the end of this year.

    Before moving on from Europe, progress on the EU’s long-term budget and recovery fund hit a roadblock, as both Poland and Hungary opposed the conditions attached, principally upholding the rule of EU law. This poses a risk to the European Commission issuing joint debt as it requires unanimity among the 27 member states to press ahead. On a more positive note, Philip Lane, the Chief Economist for the European Central Bank, reaffirmed that the bank’s aim is to keep financial conditions favourable, and monetary stimulus will seek to continue to make sure governments, companies and households all have access to cheap credit through the pandemic.

    Finishing on economic data and following the US jobless claims falling to its lowest number since the initial Covid-19 spike last week, Thursday’s print saw an increase from 711k to 742k, above market expectations of 700k. This could be the beginning of an upward trend which we have generally seen follow an increase in case numbers, and may not start trending downwards until the latest wave subsides. Continuous claims fell to 6.372m from 6.801m the previous week.

    Staying with the US where industrial production and retail sales data for October was also released, starting with industrial production; October recorded a rise of 1.1%, with September’s decline being revised to show a smaller contraction than initially expected. Retail sales rose by 0.3%, which fell short of market consensus, and the previous month was revised down. This marks the slowest rate of growth since the initial COVID-19-induced sharp detractions, implying that with cases surging once again, the recovery may be coming to a halt.


    Looking ahead to next week, virus dynamics will continue to act the primary driver of short-term risk sentiment. As we highlighted above, our focus will be on the US and Asia, where mobility restrictions in various guises have been dominating recent headlines. The high-frequency indicators that we use show a sharp drop in activity in Europe thus far in November, and there are signs that this is now starting to happen in the US. Thus, the key data highlight will be Monday’s release of the ‘flash’ PMIs where a fall in both Manufacturing and Service PMIs is expected. We remain balanced in our portfolio allocation in the run-up to year-end as it is unclear long the market can look through softer data ahead of the vaccine rollout next year. Other highlights on the data front include the IFO business climate indicator for November in Germany, as well as the US consumer confidence reading.

    Outside of this, there are political issues that will likely command market attention in both Europe and US. The Brexit talks continue although these have been made ‘virtual’ after the COVID-19 case. While expectations had been tentatively building for an imminent deal, there remains some key unresolved issues we noted above. In the US, there was some disagreement between the Treasury and Federal Reserve towards the end of this week on returning unused relief funding. While the market reaction has been muted thus far, any further escalation in tensions would not be taken well, as a co-ordinated effort on both the fiscal and monetary fronts will be instrumental for a strong recovery in 2021.

    Week to 13 November, 2020


    • Positive vaccine news from Pfizer and BioNTech, as European countries continue to break COVID-19 records
    • Joe Biden is declared the winner of the 2020 election, however President Trump shows no signs of accepting defeat
    • The US weekly jobless claims fell to its post-pandemic low, whilst UK GDP expanded 15.5% during Q3
    • Outlook: Brexit, the spread of COVID-19 and further vaccine news remain important topics in an otherwise quiet week

    Market and economic review

    The week began with positive news on a vaccine for COVID-19, which resulted in strong performance for risk markets. Pfizer and BioNTech announced that their vaccine, in phase three, was 90% effective in immunisation against the virus. Whilst the news is positive, as the vaccine clearly boosts your immunity to the virus, it does come with some logistical challenges. Firstly, it requires two shots, and secondly, it needs to be stored in extremely cold, freezing conditions. That said, it is clearly a step in the right direction and potentially forthcoming announcements from other candidates such as Moderna and AstraZeneca will be watched very closely.

    The news comes at a very good time, with a number of records being broken this week. Starting with the UK, where England is in lockdown, and after two to three weeks of stability in case numbers, new cases on Thursday 12 November reached 33,517 (according to figures from Bloomberg). There were similar negative reports elsewhere, with France seeing hospitalisations at the highest they have been since April, Italy reporting record daily numbers, and US fatalities rising to their highest level since May.

    Moving on, and over the weekend there was broad acceptance that Joe Biden had won the US presidential election, even though President Trump is still yet to concede. It appears that Congress will be divided, with the Republicans potentially maintaining control of the Senate and the Democrats likely to have a majority in the House of Representatives. This news also helped equities rally, with the market seemingly paying little attention to the various legal challenges threatened by the President Trump. That said, sentiment was dampened as the week continued, with reports claiming that Trump administration would take a step back from stimulus negotiations. This is seen as a negative development given that Senate Majority Leader McConnell was looking to pass a materially smaller fiscal package than the White House seemed willing to support.

    Turning to data releases, and the weekly initial jobless claims from the US fell to its lowest number since the initial COVID-19 spike. For the week ending 7 November, there were 709,000 claims (22,000 lower than the market expected). The continuing claims also reached a post-pandemic low, at 6.79m. The rest of the data docket can be deemed as second tier, however we did see the UK GDP reading for Q3, which came it at a 15.5% expansion, slightly behind market expectations. This of course follows a sharp 19.8% contraction in the second quarter, and with ongoing virus restrictions in the UK, a further contraction is expected for the fourth quarter.

    Finishing on central banks, and on Thursday evening we were treated to a panel hosted by the European Central Bank (ECB), with US Fed Chair Powell, ECB President Lagarde and Bank of England Governor Bailey. Despite the positive vaccine news, they each insisted that economic challenges in relation to the pandemic lay ahead.

    Staying with the ECB, and in a speech earlier in the week, Lagarde stated that the bank’s forthcoming stimulus package would most likely feature emergency bond purchases and cheap loans to banks, as it assesses its options faced with a second wave of the pandemic. Expectations are growing that the ECB will expand both its pandemic emergency purchase programme and targeted longer-term refinancing operations while keeping its deposit rate unchanged. Government bond yields fell in the eurozone following the statement, having risen early in the week on the US election result and the Pfizer vaccine announcement.


    In what is likely to be a quieter week relative to those just passed, Brexit negotiations will come into focus as the UK and the EU continue discussions on their future relationship. At the end of this year the transition period concludes, and the UK will no longer be a part of the EU’s single market and customs union. Time is clearly running out for an agreement to be reached. EU leaders are due to meet on Thursday, which would provide a good opportunity to discuss a potential deal. However, given the number of informal deadlines that have already been breached, it is unclear whether a deal will be tabled by then.

    The spread of COVID-19 will remain a focal point for markets, along with any developments on lockdowns and what they may mean for economic activity. On this point, French Prime Minister Jean Castex acknowledged that the country may tighten lockdown restrictions further in light of rising case numbers and hospitalisations. Following the news from Pfizer and BioNTech, focus will be on news releases from alternative potential vaccines, from the likes of Moderna, AstraZeneca and a whole host of others.

    Finally on the data front, US industrial production, retail sales, housing starts and building permits are due, along with the weekly jobless claims on Thursday, perhaps of particular importance given the most recent positive releases.

    Week to 6 November, 2020


    • Joe Biden is favourite to become the next US President, but election votes are still being counted
    • The UK enters its second lockdown, and the Bank of England extends its bond purchasing program
    • European services PMIs slide, whilst the increase in non-farm payrolls exceeds market expectations
    • Outlook: the US election result, Covid-19 develops and Brexit negotiations are likely to take centre stage next week

    Market and economic review

    At the time of writing (Friday afternoon), Joe Biden looks likely to win the US presidential race, however it remains a closely fought contest. With a few remaining states to be decided, we will focus only what we do know at this point in time, which is that polling agencies, once again, seemed to significantly underestimate Donald Trump’s chance of success. As the results started to roll in, Trump swept Florida, which he knew he must if he were to stand any chance of winning overall. As more states declared, it was looking more positive for Trump’s chances, which saw him move to becoming a favourite in betting odds. As the counts went on however, the market was aware that mail-in votes would likely have a democratic-tilt, and the contest was certainly far from over. As it stands, Biden has flipped the states of Michigan, Wisconsin (and likely Arizona), whilst also taking a small lead in both Pennsylvania and Georgia, all very important swing states. It is likely that by the time you read this, the final result will be declared (ignoring the probable legal action and recount demands that could follow).

    On the Senate front, the Democrats were again expected to win a majority, however this was deemed less likely than Biden winning the presidency overall. As it currently stands, the Senate is tied 48-48. We learnt that both Georgia seats will go to a runoff in January, which gives the Democrats an outside shot at getting a slim control of the Senate if both seats are won (with the Vice President Kamala Harris, if Joe Biden wins, breaking the tie).

    In terms of market reaction, after spiking at nearly 0.95%, the 10-year US Treasury yield dropped below 0.75% as it became clear that the election was much closer than had been expected. As it appeared the tide was gradually turning in Joe Biden’s favour as postal votes were counted, both equities and bonds rallied. As at the time of writing, the S&P500 is +7.3% this week alone, with the NASDAQ +8%.

    If that wasn’t enough for markets to concentrate on, there was plenty of news from central banks. The Federal Reserve kept the fed funds target range at 0-0.25%, which remains unchanged since March, and decided to maintain the bond purchasing program at $120bn per month. Unsurprisingly, the Fed Chair Jerome Powell continued to call for further fiscal stimulus to help bring the economy out of the Covid-induced slump.

    The Bank of England (BOE) decided to raise the level of its bond-buying programme from £745bn to £895bn. The increase is aimed at supporting the economy, particularly, in the bank’s words, consumer spending, through the winter months and in the face of a likely double-dip recession. Interest rates were left unchanged. The BOE also forecasted a contraction in GDP, as the UK entered its second lockdown on Thursday, with bars, restaurants and non-essential shops being closed once again.

    This is not the only new lockdown across Europe, with various restrictions imposed across the continent as a number of European countries reported record case numbers this week, including France, Italy, Poland, Austria and Romania. The picture is no healthier in the US, which saw another record number of daily infections on Thursday at 126,210.

    Finishing up, and again playing second fiddle to the flurry of election-headlines, there were some material data prints released through the week. In the US labour market on Friday the monthly change in nonfarm payrolls beat expectations, printing at 638k vs an expected 593k. In Europe, the services and final composite PMIs for a number of countries were released, where it is evident that services are now sliding, ahead of what is going to be a tough Q4 with the recently imposed lockdown measures.


    Next week will be crucial for markets as they await the result of the US election, and try to determine what this means for the future by way of an immediate potential fiscal stimulus package, global economic relationships and corporate taxation. It is possible that we could see recounts, depending on how fine the margins are. There will be some focus on the remaining Senate races too, since the control of the chamber is key in allowing the President to enact their agenda.

    Outside of that, a focus will remain on the numerous countries posting record Covid case numbers, and whether authorities will react with further lockdown restrictions, and in turn, what that may mean for economic activity and Q4 GDP.

    Lastly, Brexit negotiations are ongoing, with time running out until the transition period concludes at the end of the year. Earlier in the week it was reported that the UK’s David Frost and EU's Barnier advised that a Brexit trade deal is still possible, with a new round of talks expected to begin in London this coming weekend.

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