Weekly Market Wrap 12-October to 16-October 2020

Marius Paun | London, UK | Senior dealer | Friday 16th October 2020

Markets Jittery Amid Lack Of US Stimulus And A Rise In Covid-19 Infections

On Monday major US indices rose for the 4th consecutive day with Nasdaq having its best day since September 9th. Thus S&P and Nasdaq came within reaching distance (less than 2%) of their respective all-time high records. Among the drivers was the feel-good factor in the run-up to Apple releasing their new iPhone 12 on October 13 which is 5G enabled. The tech giant posted a 6.26% gain for the session.

The gains quickly evaporated the next day after Treasury Secretary Steven Mnuchin said that a deal between Republicans and Democrats would be difficult to reach before elections. With less than three weeks until the US presidential elections, investors seemed to find little reason to take on extra risk. On Friday, the US retail sales increased rather strongly in September. Spending rose 1.9% for the fifth month in a row after consumers splashed on sporting goods, home improvement stores and even vehicles, despite working from home a lot more.

China released its trade balance for January to September showing a $2.3 trillion surplus. Exports for the third quarter increased by 10.2% vs 10% expected while imports grew 4.3%. Among the biggest import risers are soybeans, iron ore and crude oil. For all that rhetoric, trade with the US increased 2% to September. The Customs authorities reported ‘the international landscape became increasingly grim and complicated with instability on the rise’.

We also had Chinese inflation data for last month. CPI rose 1.7% year on year vs 1.9% expected down from 2.4%. PPI moved down 2.1% more than 1.8% decrease anticipated. The report states the negative PPI is forecast to weigh on business profitability.

In the UK Prime Minister Boris Johnson spoke with German Chancellor Angela Merkel last weekend saying there are ‘significant gaps’ in the Brexit talks with European Union which need to be bridged in the coming days. Apparently, the UK government could be ready to hold talks beyond ‘the deadline’ of Oct 15th, the date of the EU Summit. In reaction, the sterling rose.

On another note, Bank of England asked banks about their readiness, in particular the technological capabilities, to implement negative interest rates if the time comes. So much for denying it recently… The central bank added that the UK economy at the end of the third quarter was about 9-10% lower than at the end of last year.

Financial Times reported that the European Union has now a target ‘hit list’ of up to 20 large tech firms for which they would like to introduce tougher regulation to address their market dominance. Also, ECB President Lagarde said this week they are seriously looking at a digital euro going forward which will not be a substitute for cash but rather a supplement.

US Crude oil slumped below $40 per barrel briefly after reports that Libyan supply is expected to pick up. Gold continued to retrace this week from a high of $1931.8 but found support around $1886 mark. Going into the weekend the precious metal was trading around $1900.00 level.