Global Markets Update – Monday 2 November 2020

More European lockdowns

Global equities suffered their steepest weekly sell-off since March as key European countries re-imposed lockdowns, derailing hopes of ongoing recovery.

UK

The FTSE 100 fell 4.8% over the week.

As COVID cases continued to rise, Boris Johnson imposed a four-week lockdown in England. The measures involve the closure of all hospitality venues, with takeaway food only allowed, although schools and all non-hospitality businesses should remain open. Wales’ lockdown ends on 9 November, while Scotland extended its tiered restrictions.

Shell raised its dividend as third-quarter profits beat expectations.

US

The S&P 500 slumped 5.6% over the week, marking its worst weekly performance since March.

Donald Trump, who continues to trail Joe Biden in opinion polls, said he was preparing a “very big” fiscal package, should he be returned to office in next week’s US presidential election. The race remains tight in several key states that may determine the outcome of the election.

US GDP rebounded 33.1% on an annualised basis in the third quarter, although output remains below pre-pandemic levels. The increase in the third quarter followed annualised contractions of 5% and 31.4% in the first and second quarters respectively.

Durable goods orders surged by a stronger-than-expected 1.9% over the month of September.

Initial US jobless claims fell to 751,000 last week, below the 775,000 forecast by economists.

Alphabet, Amazon, Apple and Facebook beat analysts’ expectations for third-quarter earnings, but shares fell as investors took profits following strong performance earlier in the year. So far this reporting season, earnings have come in around 20% ahead of expectations. However, earnings per share are still expected to be down by about 10% compared with the same period in 2019.

Europe

The FTSEurofirst 300 tumbled 5.5% over the week.

France re-imposed a lockdown for the month of November, while Germany also implemented “lockdown-light” measures. Similar moves were seen across the continent.

European Central Bank (ECB) president Christine Lagarde signalled that the bank would act in December to respond to the bloc’s deteriorating economic outlook. In its latest meeting, the ECB kept policy unchanged but indicated that “risks are clearly tilted to the downside”.

Eurozone GDP expanded 12.7% in the third quarter but remained well below pre-pandemic levels. The eurozone economy is now expected to shrink by 2.3% in the fourth quarter of this year due to new lockdowns.

Eurozone inflation held steady at -0.3% year on year in October. This is the third consecutive month of deflation.

Eurozone jobless numbers rose by 75,000 in September, ending a five-month run of improvement.

Germany’s index heavyweight SAP lost almost a quarter of its value (its worst one-day fall since the mid-1990s) after the business software group warned that renewed lockdown measures had hit demand for its services.

Japan

The Nikkei 225 retreated 2.1% over the week.

Pacific Basin

South Korea’s GDP grew 1.9% in the third quarter, its sharpest pace of expansion in a decade.

Chinese fintech company Ant Group is set to become the world’s largest IPO through its dual listing in Shanghai and Hong Kong on 5 November.

Bonds

The yield on the 10-year US Treasury bond closed the week at 0.86%, around its highest level since June. The rise in yields has been fuelled by speculation that a so-called “blue wave” at the forthcoming US election – a scenario where the Democratic party wins the presidency and both houses of Congress – will lead to bigger fiscal stimulus helping to underpin a stronger recovery and pushing up inflation expectations.

In contrast, European bond yields fell as the hopes of ongoing recovery were derailed by the re-imposition of lockdowns. The yield on the 10-year German Bund closed the week at -0.63%.

Credit spreads of US high yield bonds widened around 50 basis points in the last week of October, mirroring the sell-off in US stocks.

Commodities

Brent crude fell back below $37 a barrel amid heightened concerns over the trajectory of the world economy.

Please email us if you would like to receive our weekly newsletter direct to your inbox.