Global Markets Update – Monday 21 September 2020

Financial Crisis

Pharmaceutical stocks came under pressure after President Donald Trump signed an executive order that he said would lower drug prices in the world’s most lucrative pharmaceutical market.


The FTSE 100 slid by 0.4% over the week.

A surge in confirmed Covid-19 cases led to around 14 million UK citizens being placed under tighter restrictions, with national measures threatened if the situation doesn’t improve.

The Bank of England held interest rates at 0.1% but warned that rising Covid-19 infections and a lack of clarity over the UK’s future trade relationship with the EU could threaten the economic recovery. The Bank also said it was examining how a negative interest rate “could be implemented effectively”, causing the pound to weaken.

Retail sales rose 0.8% over the month of August, taking their year-on-year rise to 2.8%. The increase was driven by spending on household goods and DIY.

UK inflation fell to a five-year low of 0.2% in August, from 1% in July, due in part to the Eat Out to Help Out scheme. The cost of clothing and footwear also fell significantly.

The UK unemployment rate rose to 4.1% in the three months to July. However, payrolls are expected to shrink in September as the government’s support scheme winds down.


The S&P 500 closed the week unchanged. Tech stocks were once again weak.

The Federal Reserve pledged to keep interest rates near zero until at least the end of 2023, with Fed chair Jay Powell indicating he expected the pace of the US economic recovery to eventually slow. However, commentators were surprised the Fed did not hint it would shift to buying more government bonds of a longer maturity to magnify the power of its quantitative easing scheme. The Fed also set a new average inflation target “moderately above 2%”, noting that it would “maintain an accommodative stance” until it hit that target.

In addition, the Fed said it was considering whether to extend large bank’s restrictions on dividend and buybacks.

The US central bank upgraded its predictions for the US economy, with GDP now expected to shrink by 3.5% this year, compared to a fall of 6.5% in June, while the unemployment rate was expected to fall to about 7.6% by the end of the year, lower than previously anticipated.

Congressional Democrats and Republicans still appear to be at an impasse over the size and details of another stimulus package. The Senate last week voted down a $500bn proposal from Republicans, which Democrats had slammed as inadequate.

First-time jobless claims declined less than expected for the week ending September 12, to 860,000 from 893,000 the week before.

Retail sales rose 0.6% in August, slower than the 0.9% increase recorded in July and a potential early sign of the effects on consumer spending after emergency jobless benefits expired at the end of July. Sales at clothing stores dropped 20% from last year, while department-store sales were down 16.9%. Meanwhile, spending on categories including DIY, furniture and motor vehicles was higher than it was a year ago and e-commerce sales jumped 22% from last year.


The FTSEurofirst 300 inched higher by 0.1% over the week.

Eurozone industrial output rose 4.1% in July compared to the same month last year. The expansion slowed from June, when output rose an upwardly revised 9.5%, due to slower car production in Germany.

The Zew index of German economic sentiment rose to 77.4 in August from 71.5 in July. August’s reading was far higher than had been expected and was the highest level for more than 20 years.


The Nikkei 225 eased by 0.2% over the week.

With Yoshihide Suga becoming Prime Minister as widely expected, the Bank of Japan announced no changes to its current policy stance.

Pacific Basin

New Zealand’s economy shrank by 12.2% in the second quarter, marking its deepest recession in decades.

Chinese retail sales rose by 0.5% in August compared with a year ago. While retail sales are still 8.6% lower compared to the start of 2020, this is the first increase this calendar year. Industrial production surged 5.6% in August compared with the same month last year and is now up 0.4% this year.

Emerging Markets

The Asian Development Bank said Asia’s developing economies will contract by 0.7% this year, marking their first contraction in six decades.


The yield on the 10-year US Treasury bond closed the week at 0.6% while the yield on the 10-year German Bund ended at -0.48%.


The Chinese renminbi hit a 16-month high against the US dollar.


Copper rose to a two-year high of $6,850 a tonne due to strong demand from China, the world’s largest consumer of the metal.

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