Weekly multi-asset desk views

Weekly Review: 11 September 2020

Weekly Mag updates

Summary

  • 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.

Outlook

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.

 

Important information

5-year performance record to 30 September 2020

  Calendar year returns   12-month rolling returns  
  2019 2018 2017 2016 2015   2019-2020  2018-2019  2017-2018 2016-2017 2015-2016 Currency
Insight's broad opportunities strategy (pooled) (GBP) 13.13 -4.99 10.13 5.05 -1.19   -3.60 5.80 2.18 6.82 5.45 GBP
3-month GBP LIBID 0.68 0.60 0.23 0.38 0.45   0.36 0.70 0.50 0.21 0.42  


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