Market Round-up: 12-16 October

Thomas Watts

'It was the best of times, it was the worst of times'


This Week

Including perhaps one of the most famous opening lines of any work of literature, Dickens’s A Tale of Two Cities certainly encapsulates this week’s events flawlessly, with investors initially experiencing heightened levels of jubilation before ushering in a feeling of trepidation as the week drew to a close.

Finding ourselves very much in the season of light and the season of darkness as Autumn encroaches further, it was a theme which had characterised much of the summer months that kept away the gloom, as the technology sector once again lit up US benchmarks, pushing them to within touching distance of record highs.

Wall Street ended sharply higher during the beginning of the week, fuelled by expectations of the manifestation of a Federal Reserve-approved Coronavirus relief package arriving soon as well as a rally in Amazon, Apple and other technology stocks ahead of quarterly earnings season. Apple saw its shares jump 6.4%, adding $128 billion to its stock market value, as investors anticipated a frenzied consumer reaction towards its latest product, the iPhone 12. Amazon also rallied 4.8% ahead of its annual ‘Prime Day’ shopping bonanza held during the middle of the week, all of which contributed to a jump in the broader technology sector of 2.7%.

With the bar being set particularly low for 3rd quarter earnings releases over the next few weeks, analysts expect revenues for S&P 500 companies to fall 21% from a year earlier, however, much more optimistic than the 31% slump experienced during the second quarter.

Being set in both London and Paris, Dicken’s novel has taken on added pertinence as the second half of the week saw the two eponymous cities introduce further lockdown measures which rattled continental investors. With other European nations also closing schools and cancelling surgeries in an attempt to contain the virus from resurging ahead of the winter season, the European index fell around 2% with the domestic FTSE 100 being dragged down by the struggling leisure and entertainment sectors.

Not aiding matters was the increasing reliance on an 11th hour deal being struck between the UK and EU before the self-imposed divorce deadline of 15 October. Meeting face to face for only the third time since the outbreak of COVID-19, EU leaders said that a deal was “worth every effort” to find but was willing to abandon talks if concessions were demanded from the opposite side. With no end in sight to the talks and with both sides ready to walk away we had everything before us, we had nothing before us seems as pertinent as ever.


Next Week

With Brexit negotiations seemingly going down to the wire, the tone for the coming week could be set as early as Friday evening in Brussels.

On the economic data release front, it is indeed on the continent we begin the week’s proceedings, this time in Germany as the Bundesbank releases its views on Europe’s largest economy. Although broadly in line with the European Central Bank’s (ECB) thinking, the report can cause greater volatility when it contradicts their stance, although this is rare. The report itself will contain relevant articles, speeches, statistical tables, and provides detailed analysis of current and future economic conditions from the bank's viewpoint and should help us gauge the scale of the economic rebound in Europe since the nadir of the COVID-19 outbreak in March.

European data should dominate the economic landscape during the beginning of the week as the ECB make public Europe’s Current Account. Taking on added significance due to the potential costs to both sides a “no-deal” could cause, the data will detail the difference in value between imported and exported goods, services, income flows, and unilateral transfers during the previous month. The data is also important in the currency markets as increased demand for goods and services also means an increased demand for the single currency to execute the transaction.

Whatever the outcome of this week’s Brexit negotiations, it will be interesting to hear what the Bank of England (BoE) thinks of the antics in Brussels. Investors will get the chance to listen to what Andrew Bailey, Governor of the central bank, makes of the latest Brexit news and its potential impact on the domestic economy on Thursday. Due to speak at the annual Waterline Summit, Mr Bailey’s words will be heavily scrutinised by investors who will look for any hints as to future rate policy.

The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in October 2020.