Market Round-up: 26-30 Oct

Thomas Watts


This week

With the US presidential elections only a week away and with no signs of the US Federal Reserve releasing any more stimulus packages, coupled with a growing second wave of COVID-19 infections across the western world, a volatile week was predicted by many analysts, who, it’s fair to say, weren’t disappointed. 

In a week that told us a lot about domestic consumer spending habits during lockdown, the one bright spot was that although spending had slowed since September, retail sales in the UK remained robust in most sectors.  Interestingly, in a wave of mixed corporate results, including a dire trading update and subsequent 65% fall in share price for Rolls Royce, it was model railway maker Hornby that surprised analysts. Seeing its sales surge by 33% during the six months to the end of September, it reported that lockdown had seen a shift to consumers taking up hobbies such as collecting Corgi miniatures and racing Scalextric cars, all brands owned by the firm.

However, as the week progressed, it became increasingly clear that it was the global economic recovery that was coming off the rails. Uncertainty over the effectiveness of future vaccines and increased lockdowns being imposed across Europe saw the FTSE 100 fall to its lowest level in six months on Wednesday. Dragged down by banks and travel stocks once again, investors fretted over the chances that a second wave could be worse than it had been initially as the UK moves into the more traditional cold and flu season. Coupled with ongoing Brexit talks, which had taken a back seat to virus uncertainty, a report saying European Council President Charles Michel warned that trade negotiations were at their most difficult stage gave investors yet another reason to sell risk assets. 

However, it was not all doom and gloom during the week as Thursday provided a level respite for investors, in the form of address from the European Central Bank, who left policy unchanged on Thursday, resisting pressure to unveil more stimulus amid a new wave of the pandemic, but provided the clearest hint yet of fresh easing at its next meeting in December. 

Also providing reason for cheer, were signs that the US economy was firmly on track as data showed it grew at a record pace for the third quarter as the government injected more than $3 trillion worth of pandemic relief, which has shown to be having an effect on increased consumer spending. US Gross Domestic Product (GDP) rebounded at a 33.1% annualised rate last quarter, the fastest pace since the government started keeping records in 1947. With the data being one of the last major economic announcements before next week’s US elections, it will be interesting to see if the numbers have any effect on last minute polling.

Next week

As the coming week ushers in the first days of November, we have plenty to look forward to, not just on the economics side, but also on the political as the US Presidential Election and continuing Brexit negotiations are set to take centre stage. 

Classically taking place on the Tuesday “after the first Monday” of November, allowing what was then a largely agricultural nation to travel into the towns and cities and vote, following the Christian observation of All Saint’s Day the day before hand, the coming week will not necessarily see a new President announced, regardless of the result. With the majority of the ballot taking place remotely, it may be a few days, even weeks until a winner emerges. With Joe Biden going into the final few days with a 10 point lead, it is worth noting that such an advantage has never been overturned in US election history, what we can expect is heightened volatility in the markets in the lead up and subsequent days around the big vote.

Whilst in Westminster and Brussels, Brexit negotiations are set to intensify with mixed messages over how close an accord is being released on an almost daily basis, analysts’ will be hoping that markets can once again focus on the fundamentals soon. In terms of economic data releases, it is in Europe that we should see the most noteworthy. A slew of European PMI data is set for release throughout the week, with both Manufacturing and Services numbers made public for the majority of Europe’s major economies, including Germany and France. The release should give us a more comprehensive view of just how well the continent is bouncing back, or indeed if it still is after the reintroduction of lockdowns across most major cities.

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.