Duncan Donald

Fri, Sep 25

As Covid cases rise across Europe, the markets awaid strong and decisive governmental action.

This week has brought some consolidation to the markets. With the buoyant US markets giving back the gains on the year, even the tech heavy Nasdaq has had a subdued heavy week. Considering the growing headwinds of a surge in cases and mobility restrictions throughout Europe, the United Kingdom, and the US, there is an overriding nervousness in the price action. With the facts pointing to lower stocks the recent overwhelming fact that sell offs only wake value buyers of stock (particularly in FAANG stocks and the broader Tech sector) the impacts of the selling have been muted for now. But there feels little doubt we are on the cusp of a big move into the US election, but as yet the exact direction is trickier to define despite the logic saying it should be to the downside.


In the US, all eyes were on the Federal Reserve Committee members as they appeared at scheduled events in the wake of their somewhat underwhelming performance at last week's rate setting meeting. The tone was much the same from Jerome Powell, as he took the approach that they have done all they can and passed it back over to the government to act with fiscal support. Whilst the Republicans and Democrats still continue to be at deadlock on the next aid package and that situation not looking likely to change ahead of the election, there are real concerns of how this will affect the US economy should we see a further surge in virus cases. Despite this the Stock market has held up relatively well, but any further negative news could start to make the longer-term investment community consider their options. The US Dollar was one of the better performing currencies this week as the markets sought safe-haven investment again with USD/JPY turning up from 104.00 to 105.50 and the Pound and Euro under pressure from the greenback.


In the UK we are seeing a significant surge in virus cases, which forced the government into a curfew of bars and restaurants at 10pm each night and encouraged those who could work from home, to do so. These measures were not perceived as strong enough, and with the addition of the underwhelming announcement of new employer aid via the furlough scheme announced by Rishi Sunak on Thursday the Pound ends the week around the 1.2700 area against the US Dollar unaided by again no positive steps towards Brexit agreement with the EU. For now whilst the depleted level offers a good medium to long term investment opportunity, in the short term it's hard to argue a case for buying the Pound, with the Government falling short of delivery of Covid positive action, business relief and trade agreement.


In the Eurozone, the main stories this week have been raising cases and as such lockdowns. Cases in Germany, France and Italy and Spain are reverting to levels not seen since the lifting of lockdowns forcing towns, regions, and countries to reinforce restrictions to protect hospitals that are starting to come under pressure again. Naturally, there was an expectation of an autumnal increase in cases, but the recent increase does raise serious concerns with large towns in Spain like Madrid already in full lockdown. All eyes will be on the ECB for the guidance of financial support next week with Head Christine Lagarde scheduled to speak on Monday and Wednesday


The Week Ahead


Monday: Quiet day with a Chinese bank holiday. UK Nationwide House Prices are early in the session. The main event of the day is the ECB’s Lagarde at 2.45. 


Tuesday: In the European session we get CPI Inflation data from Germany and Spain before UK Mortgage Approvals and Net Lending data. In the US session is Goods Trade Balance, Consumer Confidence and Fed Speakers, Williams, Harker, Clarida and Quarles.


Wednesday: Chinese PMI Manufacturing data is first up before German Import data and Retail Sales. From the UK we get GDP and Current Account data. At 8.30 we again hear from the ECB’s Lagarde.In the US session is ADP employment data and US and Canada’s GDP numbers as well as Chicago PMI and Home sales numbers


Thursday: More PMI data this time from Eurozone Switzerland and the UK. In the US session we get PMI and ISM manufacturing data as well as weekly Unemployment data and Fed speakers Williams and Bowman. 


Friday: Japanese Unemployment data comes early. In the US session its the big Unemployment data with Non-farm Payrolls, Average Earnings and the Unemployment Rate, before University of Michigan Consumer Sentiment.