During a week which saw the UK government consider tightening its lockdown sanctions further, it was no surprise that the leisure industry suffered the most as restaurants, pubs and in particular cinema chains, bore the brunt of investor selling. However, by the end of the week, a stronger projected economic backdrop helped much of UK PLC to outperform its international peers.
Monday saw Cineworld shares nearly half as the cinema chain admitted it was considering closing all UK and US screens. The company was left reeling as more big Hollywood studios delayed the releases of their flagship franchises. However, the situation the sector finds itself in aside, investors chose to focus on the bigger picture, pushing indices higher throughout the week as they did so.
Service sector data for September showed Britain’s economy proved more resilient than initially thought despite a tightening of lockdown restrictions and an end to a temporary government subsidy for businesses. With a reading of over 50 indicating expansion, a strong 56.1 led investors to rejoice, beating analysts’ predictions of 55.1 and showing a positive trend for the third consecutive month. Growth was supported by another upturn in new work amid reports that market conditions continued to improve. However, growth across the services sector was uneven, with gains principally focussed on areas such as business-to-business services and not those that featured physical consumer contact.
Thursday also gave more reason for investor cheer as indices in Europe moved higher, buoyed by positive broker upgrades on advertising agents, a sector known to be highly cyclical. An upgrade by Goldman Sachs to "buy" helped German television network ProSieben jump 5.1% higher, while Publicis rose 2.4% after the U.S. investment bank said it expects the French ad firm to outperform global peers in the third quarter. The good news also stretched to domestic shores as advertising FTSE 100 behemoth WPP enjoyed strong gains throughout the week.
It was not just the large caps which were enjoying a swing in positive sentiment, as the midcap FTSE 250 rose to its highest level in nearly two months on Thursday. The Bank of England Governor’s comments that he believed Britain and the European Union should be able to reach a trade deal, and that he did not expect the new wave of COVID-19 cases to be as damaging to the economy as the first were a major cause for refreshment. This, combined with a raft of positive earnings reports showing that UK PLC was recovering from the worst of the outbreak, also helped the pound to push over 1.29 against the USD.
The coming week should see an unusually quiet start as US markets remain closed in observance of Columbus Day, potentially resulting in thinner trading volumes and smaller market moves as Americans take the day off.
Much like Columbus’s original voyages, sailing from continental Europe and one way or another ending in the Americas, so will investors’ attention switch across the Atlantic as the week progresses. Tuesday will see the release of German ZEW Economic Sentiment data, which should provide something of a barometer for the bloc as a whole, being the largest economy in continental Europe. The survey includes about 300 German institutional investors and analysts who are asked to rate the relative six-month economic outlook for Germany. Through the nature of their jobs, institutional investors are better informed than most about the state of the economy and their views carry much more weight. Changes in their sentiment can often be a signal of future economic activity. As a reference point, any reading above 0.0 indicates optimism with a record low (-49.5) coming in March this year when sentiment crashed during the onset of the Coronavirus in Europe. However, since that nadir, sentiment has very much been on the rise, with a positive reading every month subsequently, outperforming analysts’ predictions each and every time.
Arriving in the new world on Friday, we are treated to US Core Retail Sales data, detailing the change in the total value of sales at the retail level, with volatile automobile sales striped out. This ‘core’ data should provide a better illustration of consumer spending habits and should also allow us to predict future inflation rates more accurately.
The end of the week sees the G20 nations coming together for their Autumn summit, presumably held over videoconferencing facilities this time around. The meeting will be attended by finance ministers and central bankers alike from the 20 largest industrialised nations, including the G7 nations - Canada, Italy, France, Germany, Japan, the UK, and the US. The meetings are closed to journalists, but officials usually give hints to reporters throughout. A formal statement covering all policy shifts and meeting objectives is released after the meetings have concluded. The entire summit is expected to last until Sunday.