Weekly multi-asset desk views

Weekly Review: 18 September 2020

Weekly Mag updates

Summary

  • 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.

Outlook

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.

 

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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