Global equities retreated, undermined by a sharp increase in new coronavirus cases across Europe which prompted fears about further lockdowns, as well as broader uncertainty about the prospects of additional US government stimulus measures.

UK

The FTSE 100 declined 3.7% over the week.

Chancellor Rishi Sunak announced plans to replace the UK’s furlough scheme with a Germany-style wage subsidy plan, in which the Treasury would subsidise people who worked at least a third of their usual hours. Employees unable to work would not be eligible, however. 1 million jobs are expected to be lost when the furlough scheme ends.

As COVID-19 cases continued to surge, almost one third of the UK was placed under tighter restrictions, with a 10pm curfew in place for hospitality businesses across all of England which is expected to last 6 months.

The flash estimate of the IHS Markit/CIPS composite purchasing managers’ index fell to 55.7 in September from a 72-month high of 59.1 in August. The slowdown in September was mainly due to the services sector, where confidence, especially in areas such as transport, international travel and hospitality, eased to a four-month low.

US

The S&P 500 fell 2.0% over the week, marking the fourth consecutive week of negative returns. The benchmark index is now nearing correction territory, defined as a fall of 10% or more from a recent peak.

Against the backdrop of an impasse in supplementary support measures, Federal Reserve officials warned that the US central bank’s massive monetary stimulus will not be enough to support the world’s largest economy through the pandemic unless it is matched by government stimulus spending.

Initial jobless claims rose by more than expected in the week to 12 September, increasing 870,000 on a seasonally adjusted basis, a rise of 4,000 on the previous week. However, this was the fourth straight week that jobless claims had fallen below 1 million.

Tesla remained volatile, with shares sliding 10% after the electric vehicle maker’s founder Elon Musk pledged to halve the cost of the cars’ batteries but also warned of “the extreme difficulty of scaling production of new technology”.

Europe

The FTSEurofirst 300 lost 3.4% over the week. European stocks hit a three-month low, dragged down by travel and energy shares, as hopes for a rapid recovery from the pandemic dimmed.

The eurozone composite purchasing managers’ index (PMI) dropped to 50.1 in September, from 51.9 in the previous month. Factories reported a boost to production from rising exports and the reopening of retailers in many countries, with the eurozone manufacturing PMI increasing to a two-year high of 53.7 in September, up from 51.7 in August. However, the service sector has sunk back into decline as face-to-face consumer businesses were hit by intensifying virus concerns: the eurozone services PMI fell to 47.6 in September, from 50.5 in the previous month. It was the index’s lowest level since May and the first time in three months that the reading had dropped below the 50 mark, that separates expansion from contraction.

The Ifo index of German business confidence rose to 93.4 in September from 92.5 in August and the highest level since March. In France, the Insee business climate index rose to 92 in September from 90 in August and its highest level since February. Both bodies noted that confidence was higher among manufacturers and construction firms, with lower sentiment among services companies.

Germany’s manufacturing PMI rose to 56.6 in September, from 52.2 the previous month, while French manufacturing showed a marginal increase to 50.9 in September, from 49.8 in the previous month.

Germany’s manufacturing PMI rose to 56.6 in September, from 52.2 the previous month, while French manufacturing showed a marginal increase to 50.9 in September, from 49.8 in the previous month.

Japan

The Nikkei 225 slid 0.7% over the week.

Emerging Markets

Turkey’s central bank lifted its benchmark interest rate by 2% in a surprise move that delivered an instant boost to the embattled lira. President Recep Tayyip Erdogan has fiercely opposed such a move to tighten the country’s monetary policy, but the central bank’s monetary policy committee said a rate rise was needed to contain inflation, which stood at 11.7% in July, more than double the bank’s 5% target.

Zambia asked holders of its US dollar bonds to accept delays in their interest payments into next year. This will be the first African debt default on private creditors since the pandemic.

Bonds

The yield on the 10-year US Treasury bond closed the week at 0.65%, while the yield on the 10-year German Bund ended at -0.53%.

The European Central Bank urged the EU to consider making its pandemic recovery fund permanent. Making the fund permanent would create a deep pan-eurozone sovereign debt market that would provide strong support to the economically weaker, tourism-dependent nations of southern Europe, reducing their need to borrow on the basis of their own credit ratings. The yield on Italian 10-year bonds briefly fell to a record low of 0.77% on the news, with a setback for the anti-immigration Northern League in regional elections further boosting Italian bond prices.

Investors withdrew almost $4.9 billion out of US junk bond funds in the week ending 23 September, marking the biggest weekly outflow since the depths of the coronavirus pandemic in March when $5.6bn was withdrawn. Yields on junk bonds have risen more than 50 basis points so far over September to their highest level in two months.

Index provider FTSE Russell said that planned to include China in its World Government Bond Index, subject to confirmation in March 2021. The index is widely used as a benchmark and Chinese debt could see significant inflows as a result. Chinese bonds are already included in the Barclays Bloomberg and JPMorgan Emerging Market indices.

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