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    Weekly multi-asset update: September

    Weekly multi-asset update: September

    25 September 2020 Multi-asset
    Week to 25 September, 2020


    • COVID-19 cases continue to rise as the second wave takes hold, sparking a call from the Federal Reserve Chair for greater fiscal support
    • Provisional PMIs for September show a slowdown in services activity, while manufacturing appears more resilient
    • Outlook: next week’s first presidential debate and resumption of Brexit negotiations put politics in the limelight

    Market and economic review

    This week we had a first look at how economies have fared through September with the release of provisional PMI. We expand on those further below, however it is evident that the services sector is being affected by the second wave of COVID-19 cases with prints from Germany and France underperforming expectations. Fears of a second wave and what effect that may have on the economy continues to be noticed by markets too. On Thursday 24 September, the MSCI World index closed at -6.3% month-to-date, whilst the S&P 500 closed 9.3% lower than its peak reached on 2 September.

    This adds pressure on governments and central banks to continue to provide the support the economy has become dependent on. Following the US Federal Reserve’s downward revision to economic forecasts last week, Chairman Jerome Powell called for greater fiscal spending, stating that both monetary and fiscal policy should be working in tandem to boost the economy. In Europe, the European Central Bank (ECB) announced that it would be reviewing its current measures employed to support the economy, which is likely to take place next month. And here in the UK, Bank of England governor Andrew Bailey warned that the economy would face a very tough final quarter of the year as COVID-19 restrictions are re-imposed, however talked down recent widespread speculation that the Bank of England was close to moving to negative interest rates.

    The number of COVID-19 cases reached 32.27m this week according to Bloomberg, with recorded deaths at 983.7k. Whilst we are seeing an increase in cases again, post the lifting of strict lockdown restrictions, this has not fed through into hospitalisations and mortalities at the same rate as when COVID-19 first took hold earlier this year. Governments are again starting to act on the increase in case numbers, with the UK government announcing strict measures including advising people to work from home where possible to do so (having told people to return to work not long ago), and the maximum allowed gathering of just six people. In addition to this guidance, hospitality venues must now close by 10pm.

    With cases increasing across many regions and in turn fresh restrictions being imposed by governments, it is somewhat unsurprising that we have seen a pullback in the European services PMIs. The Euro Area services PMI printed at 47.6, lower than the expected 50.6, and notably below the 50-mark which separates economic contraction from expansion. Both France (48.5) and Germany (49.1) also came in below expectations. The story is less negative on the manufacturing front, with the Euro Area (53.7), France (50.9) and Germany (56.6) all in expansionary territory. From the underlying data it is clear to us that the recovery in services has stalled since the July peak, and manufacturing has tended to lag services by one to two months. In manufacturing, we are seeing the relationship to supply disruptions diminish, the new export orders component lagging the other manufacturing components by one to two months, and trade sequentially improving.

    Finishing on the US labour market, this week’s initial jobless claims report was again above market expectations. For the week ending 19 September, the number came in at 870k, which was 30k higher than the market was expecting. This trend is in line with what we have seen in recent prints, and week by week concerns that the recovery in the US labour market is stalling continue to grow.


    Next week marks the start of the fourth quarter, where the first US presidential debate and the resumption of Brexit negotiations between the UK and the EU put politics into the limelight. Before the debate, on Saturday 26 September President Trump will announce his nominee for the Supreme Court.

    Moving to data releases, the September jobs report for the US will be released on Friday. This is the last report we will see before election day so the numbers will no doubt be of significance. The other notable release next week is the manufacturing PMIs and the ISM manufacturing index.

    Other than that, markets will be well attuned to developments in the second wave of COVID-19 cases with caseloads increasing of late. A number of countries have imposed new restrictions, so it will be interesting to see how successful these are in limiting a further spread of the virus.  

    Week to 18 September, 2020


    • Central banks top the news agenda, with Fed, BoJ and BoE meetings
    • US data shows a continued economic recovery, but at a gradually slower pace

    Market and economic review

    As the number of COVID-19 cases continues to rise, it is noticeable that the level of hospitalisations and mortalities are markedly low relative to the first wave. In part this may be attributed by the age distribution of those infected, with a younger demographic contributing the most to second-wave caseloads.

    The tale of economic support topped the agenda once again this week, with the Federal Reserve (Fed), Bank of Japan (BoJ) and Bank of England (BoE) all holding meetings. On the fiscal side, despite US President Trump pushing for Republican lawmakers to take up the $1.5 trillion stimulus bill recently put forward, there has been no real progress in delivering a new fiscal package. That said, the recent worsening economic data may indeed act as a catalyst to push a bill over the line in the coming weeks.

    In other news, with the recent resignation of Shinzo Abe due to health concerns, Yoshihide Suga was elected as the new president of the Liberal Democratic Party and will form a government as the new prime minister of Japan. From an economic standpoint, Suga has promised to continue to pursue the unfinished policies of Abe, stating priorities to fight COVID-19 and help to boost an economy largely damaged by the virus.

    Central banks top the news agenda, with Fed, BoJ and BoE meetings

    This week was dominated by central banks with all eyes on the Federal Reserve meeting on Wednesday. The committee implied that interest rates would remain close to zero until 2023, whilst quantitative easing would stay at its current level. The Fed expects to maintain an accommodative stance of monetary policy until it achieves inflation that averages 2% over time, with longer-term inflation expectations anchored at 2%. The messaging also called for further fiscal stimulus to protect the labour market and the economy, with forecasts projecting that economic activity will reach Q4 2019 levels by the end of 2021. 

    Over to Japan, where the BoJ maintained its current policy stance, stating the economic activity was starting to gradually resume. And in the UK, the BoE unanimously voted to keep policy the same with interest rates remaining at 0.1% and their quantitative easing programme unchanged. However, more interesting was the market reaction post the announcement as sterling took a leg lower, with minutes from the meeting showing that the Monetary Policy Committee were briefed on plans to explore how negative interest rates could be used, which is due to be further discussed in Q4.

    US data shows a continued economic recovery, however at a gradually slower pace

    Data out of China was slightly ahead of market expectations with August retail sales increasing by 0.5% yoy and industrial production increasing by 5.6% yoy. This contrasted with the US retail sales figure, which underperformed expectations printing at 0.6% (vs 1% expected). It was a similar story for both industrial production (0.4% vs an expected 1.0%) and manufacturing production (1% vs an expected 1.3%) in the US, showing that whilst the rebound continues, it does so at a gradually slower pace.

    This trend followed in the US labour market, with the weekly initial jobless claims for the week ending 12 September coming in at 860,000, slightly higher than market expectations. The decrease in the headline number has slowed to a crawl in recent weeks. On a slighter more upbeat note, the continuing claims do seem to be trending downwards at a steady rate, coming in at 12.6m vs a market expectation of 13m and down from 13.4m the week before.

    Over to Europe, where economic sentiment in the eurozone rose substantially in September. The ZEW Economic Sentiment Index rose to a 16-year high, reflecting rising optimism around the trend in economic growth. This follows the loosening of COVID-19-related restrictions and comes despite the recent pickup in new coronavirus cases.


    With this week’s raft of central bank meetings out of the way, next week provisional PMIs will likely be a focal point for markets. Having seen August PMIs mostly back above the important 50-mark (which separates economic contraction and expansion), an initial indication as to how economics have fared into September should be closely monitored.  

    Outside of that, next week looks to be fairly quiet. Once again markets will continue to track developments in the US labour market with progress on initial jobless claims continuing to stall, whilst the German IFO survey is also due.

    COVID-19 caseloads are likely to continue to drive markets, and specifically what that means for authorities imposing stricter social distancing measures (possibly through localised lockdowns or mandatory self-isolation post travelling to other countries, as imposed here in the UK). We will continue to track how these measures feed into mobility and activity data, and ultimately what that means for the economic recovery from here on out. 

    Lastly, developments in the UK’s exit from the European Union should continue to make the headlines, with the European Commission President Ursula von der Leyen stating she was “convinced” that a trade deal with the UK could still be agreed, despite the UK’s internal market bill going through the House of Commons.

    Week to 11 September, 2020


    • COVID-19 update: US case figures continue to decline as India becomes the second highest infected country
    • The recovery in the US labour market stalls amidst a lack of progress on additional fiscal stimulus

    Market and economic review

    The number of COVID-19 cases continues to increase as India takes over Brazil as the second most infected country, while the US appears to be faring better than the EU and the UK in controlling its caseload. Despite concerns of the escalating second wave across several European countries, the European Central Bank (ECB) left its main refinancing and deposit rates unchanged in the September meeting in line with the market consensus. In the US, there have been no further developments in the delivery of any additional stimulus, as a bill proposing a ‘slimmed down’ package was voted down towards the end of this week.

    Away from COVID-19, the risk of a no-deal Brexit returned to markets following reports that the UK could undermine parts of the Withdrawal Agreement, an international treaty between the UK and the EU signed by Prime Minister Boris Johnson and passed by both houses of the UK Parliament. The newly formed internal market bill is said to override parts of the Brexit Withdrawal Agreement which was reached towards the end of last year; this is due for debate amongst the House of Commons next week. In response to this news sterling had a tough week, weakening across the board and reaching a 6-month low against the euro.

    COVID-19 update: US case figures continue to decline as India becomes the second highest infected country

    According to Bloomberg, confirmed cases globally have now reached 28.2m with the mortality rate at 3.2%. Whilst the US has done a better job recently in controlling its case numbers, areas of the EU and the UK are continuing to experience an uptick in cases. Indeed, Thursday was the first day since early spring where the number of daily cases in the EU and the UK surpassed that of the US. However, a key feature of the European ‘second-wave’ is a much lower rate of hospitalisations and deaths compared to earlier this year. This likely explains why the recent pickup in cases has not had a notable impact on risk sentiment. In other areas of concern, India continues to see large case growth and has now overtaken Brazil as the country with the second most cases (which is still only 2/3 of the number of cases in the US). With daily new cases in India near 100,000, it looks possible that it will soon surpass the US.

    Onto fiscal support, where all eyes remain on whether a new round of stimulus from the US will be agreed, with little progress made this week. On Thursday, the Senate voted down a bill that was estimated at $500-$700bn targeted towards unemployment insurance benefits and aid to small businesses. With some Republican Senators unsure whether more stimulus is needed and Democrats pushing for a larger bill, the road ahead is one of uncertainty.

    The recovery in the US labour market stalls, amidst a lack of progress on any additional fiscal stimulus

    With hard data releases somewhat lacking this week, what we did see was the Euro Area’s Q2 GDP reading have a modest upward revision to a -11.8% decline rather than the previously estimated -12.1%.

    Over to the US, where the initial weekly jobless claims for the week ending 5 September was unchanged from the previous week at 884k (34k above market expectations). Continuing claims covering the week prior to that increased to 13.4m from 12.9m the week before. These numbers will add to concerns that the recovery in the US labour market is slowing, especially with the lack of any further stimulus being agreed to in support of this recovery.


    Economic data takes a backseat next week whilst focus turns to central banks, with a number of policy announcements from around the world. The highlight will likely come on Wednesday, where we hear from the Federal Reserve regarding their latest monetary policy decision, as well as the subsequent press conference from the Fed Chair Jerome Powell. Outside of that, there will be decisions from the Bank of England, Bank of Japan and several emerging market central banks.

    On the data front, we will receive industrial production, retail sales, housing starts and building permits from the US, as well as the usual weekly initial and continuing jobless claim releases. On Tuesday, we will also receive industrial production and retail sales prints from China.

    Lastly, given the abovementioned developments with Brexit, focus will be on the UK government as the new internal market bill is debated amongst the House of Commons.

    Week to 4 September, 2020


    • Economic data releases pose some questions on recovery momentum from here
    • COVID virus dynamics suggest 2nd waves may be less economically disruptive

    Market and economic review

    Risk assets demonstrated choppy price action over the week, with early gains given back as markets were led lower by tech stocks.

    The week started well with the US Institute for Supply Management (ISM) Manufacturing index rising to 56.0 from 54.2 and the New Orders sub-component rising from 61.5 to 67.6 (these surveys measure the change in activity vs previous month with 50 being the divider between expansion and contraction).  We also got the final readings of equivalent surveys for the Eurozone where the Composite reading came in pretty much in line with the flash estimate at 51.9. This was a step down from July’s 54.9 reading, pointing to a moderation in the pace of recovery following the pent-up demand seen as economies re-opened.  Indeed, details in the US ISM for the Service sector released later in the week played to this.  While the headline reading came in at 56.9 versus prior 58.1, the New Order sub-component (regarded as a leading indicator) showed a 10pt fall to 56.8; the Employment sub-component improved but remained subdued at 47.9.  Questions on whether the momentum of the recovery can be sustained may have been one of the contributing factors behind the equity market correction seen on Thursday. 

    Non-Farm Payrolls data on Friday pointed to gains of 1,371k over the month, a slight beat vs 1,350k expected, but lower than gains seen in the previous 2 months.  US Continuing Jobless Claims declined to 13.2m in August, down from a peak of c25m seen in May, but there is still some way to go to get down to pre-COVID levels of c1.7m.  Perhaps reflecting that some Federal Reserve Board speakers mentioned the need for continued fiscal support to aid the recovery. Meanwhile, Congress wrangles over a new package to replace what has expired, with key employment benefits having only been temporarily extended at lower levels.

    COVID-19 virus dynamics suggest 2nd wave less deadly; some positive news-flow on vaccine development

    Global cases continued to grow reaching 26.3m according to Bloomberg. We have seen flare-ups or 2nd waves in Europe, parts of the US and elsewhere, but so far at least they appear to be much less deadly. There could be a number of reasons for this – including much more extensive testing and infections being concentrated in younger people who have been more active post lock-down.  For now, political leaders appear to believe these episodes can be managed by local measures rather than reintroducing widespread lockdowns.  This suggests that the risk of major economic disruption from 2nd waves may be less than had been feared.  Meanwhile efforts to find a vaccine continue with 7 drugs in final phase 3 development and suggestions that some may be available in the autumn for emergency use.  Indeed, it was reported that the US Centers for Disease Control and Prevention told state health officials to be ready to distribute a vaccine by November 1st.  That said, the common flu vaccine is <50% effective and no coronavirus vaccine has ever been tested or used at scale.

    US dollar strengths and government bond yields ease down

    One of the trends in markets over recent months has been the weakening US dollar, which is generally helpful for risk assets.  Active market positioning looks most pronounced in long Euro vs US$ with that pair briefly reaching 1.20 for the first time since 2018.  This led to comments from some European Central Bank (ECB) members suggesting that continued strengthening of the Euro could become a policy issue if it weighed against inflation and recovery.  This may be one of the reasons for the reversal later in the week.  It was notable that headline inflation for the Eurozone came in at -0.2% YoY vs prior month reading of +0.4%.  Our analysis suggests that to a large extent this was driven by COVID-19 disruption pushing summer sales typically seen in July into the month of August.  Staying in Europe, France announced a further €100bn recovery plan to support vulnerable sectors of the economy – another indication of policy makers’ concern over the growth outlook and determination to foster a recovery.

    August saw a move up in bond yields and some curve steepening which faded last week.  US 10y Treasury yields moved back down to 67bps (at the time of writing) which is towards the lower end of the 60-80bps range seen since Q1, and some of the curve steepening we saw in August was reversed.  A key element of central bank policy is likely to remain anchoring bond yields, at least out to 10 years, to support the recovery and help deficit financing.


    Markets will focus on central bank policy meetings next week in what remains one of the most uncertain environments for many years.  The Bank of Canada makes its latest decision on Wednesday, before the ECB follows on Thursday, ahead of the Federal Reserve the week after that. Brexit negotiations between the UK and the EU will resume as they move closer to the year-end deadline when the transition period concludes.  Markets will also continue to closely watch COVID-19 virus dynamics and vaccine developments.

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