Weekly Market Wrap 26-October to 30-October/2020

Marius Paun | London, UK | Senior dealer | Friday 30th October 2020

Stocks Dive On Covid And US Election Uncertainty

The US stocks posted sharp declines this week, driven by a resurgence in coronavirus cases, uncertainty surrounding the US election and the failure to agree on the next stimulus bill. On Thursday, the US Bureau of Economic Analysis showed the GDP in the third quarter grew by a record 33.1% on a year on year basis. The data beat the official consensus for a 30.9% growth rate.

The initial jobless claims also came in better than anticipated at 751,000 vs views for 758,000 (down 40,000). Nonetheless, the rebound was short-lived and stocks resumed their downtrend as investors now weigh in a delay in election result not only because of the additional time needed to count mail-in ballot but also the disputes ( President Trump already tweeted he intends to contest it).

Over the weekend China’s Global times reported the People’s Bank has started to back the issuance of digital yuan. Apparently, the legal basis has been provided and a trial has already commenced in parts of China!!! Meanwhile, industrial profits for September rose 10.1% year on year. It was a strong comeback but less than August (+19% compared with last year).

We also saw Germany’s central bank said the economic recovery is continuing but at a much slower pace. It added that an abrupt increase in Covid infections, coupled with restrictions, will hit the services industry quite hard. Hospitality is estimated to be badly hit in the near future. Speaking of restrictions, mid-week Germany decided to close parts of the economy, bars, restaurants and leisure facilities. The shutdown will start on November 2nd until the end of the month. In the process, the government will provide up to 10 billion euros for the lockdown sectors.

The French government was even more restrictive in its response to high levels of reported coronavirus cases lately. Universities will go online; bar, restaurants and non-essential retailers to close; moving between regions banned; external borders to be shut. The measures start today and will last until December 1st at the earliest.

The European Central Bank had its meeting this week and decided to hold rates unchanged as widely expected. President Christine Lagarde said the risk is clearly tilted to the downside, the tools ‘will recalibrate’ based on December estimates. Worryingly she also admitted the economic recovery is ‘losing momentum faster than anticipated’.

Back in the UK, there is growing speculation in the media of mounting pressure on Prime Minister, Boris Johnson, to join his European counterparts and consider a second national lockdown. The UK Government has refused that so far, saying a 3-tiered approach with local lockdowns is a better solution. We also learned that Johnson might just wait for US election result before making a final decision on Brexit. A no-deal is much more likely in the event of a Trump win. If challenger Joe Biden wins things could get a bit more complicated.

Gold prices followed equities lower this week dropping from $1911 to $1880 going into the weekend as investors preferred the safety of the US dollar in the current uncertain environment. Concerns about the global slowdown and increased supply also hurt oil prices. The US crude slumped from a high of $39.9 to $35.07 trading around $35.45 on Friday afternoon.