Weekly multi-asset desk views

Weekly Review: 25 September 2020

Weekly Mag updates

Summary

  • COVID-19 cases continue to rise as the second wave takes hold, sparking a call from the Federal Reserve Chair for greater fiscal support s
  • 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.

Outlook

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.

 

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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