Market Round-up: 31-4 September

Thomas Watts


This week

In a week that Schools reopened their doors after a prolonged COVID-19 induced summer holiday, it was European equities that were moved to the back of the class as consistently weak inflation data plagued the continent’s economies. 
By Tuesday, shares on the continent had fallen for four consecutive sessions as data showing that inflation in the bloc turned negative last month for the first time since May 2016. This put further pressure on the European Central Bank to inject yet more stimulus to generate price growth, which has undershot its target now for over seven years. Travel and leisure stocks were especially poor, branded the worst performing European sector for the week as a surge in COVID-19 cases at popular tourist destinations such as Portugal and Greece spurred concerns about the countries being added to the government’s quarantine list. 
The middle of the week saw FTSE 100 blue chips receive a gold star, enjoying their best day in over two months as better than anticipated housing data led investors to re-examine the much-overlooked domestic property sector. Britain’s largest homebuilder, Barratt Developments jumped 8.6% as it forecast better advance sales and more home completions over the coming year, in line with the majority of its peers. From a macro standpoint, the sector also enjoyed a strong tailwind as data from Nationwide showed house prices continued their post-lockdown recovery in August, notching up their highest monthly rise in more than 16 years. 
"House prices have now reversed the losses recorded in May and June and are at a new all-time high," said the bank’s Chief Economist. Values rose by 2% last month, taking the average housing price to £224,123.
The picture was less rosy across the pond as a slew of negative employment data showed the world’s largest economy could be a late registration in terms of recovery, causing investors to dump well-performing technology stocks on Thursday. While teachers across the country were receiving newly shined apples, the stock, the first company to rise to £2trillion in market cap, lost its shine severely, falling around 5% along with tech accomplices Facebook and Netflix. Data earlier in the day, showed the number of Americans filing new claims for unemployment benefits fell more than expected last week, but remained extraordinarily high, giving investors the perfect excuse to sell the so far stellar Tech sector.

Next week

With house prices reaching all-time highs according to data released by Nationwide this week, the coming week sees another large mortgage provider, Halifax, release their House Price Index numbers. 
The numbers represent the UK’s earliest report on housing inflation but usually produce only a mild reaction as buying and selling prices are not always correlated. However, their data still acts as a leading indicator of the state of the UK’s housing market as rising house prices attract investors and often spurs industry activity.
Much like the housing data on Monday, the rest of the week will see economists move from one address to another. This time on the continent, as the European Central Bank (ECB) announces any change in future borrowing rates as well as their views on the stability of the Eurozone economy. As rate decisions are usually priced in by the market, it is the press conference afterwards that can cause the most volatility, especially in currency markets. It's the primary tool the ECB uses to communicate with investors about monetary policy and will contain the outcome of their decision on interest rates and commentary about the economic conditions that influenced their decision. Most importantly, it discusses the economic outlook and offers clues on the outcome of future decisions. 
In an unusually quiet week for economic data releases; the end of the week is wrapped up on domestic shores as the Office for National Statistics makes the nation’s Industrial Production figures public. Detailing the change in the total inflation-adjusted value of output produced by manufacturers, the data acts as a leading indicator of economic health with production reacting quickly to the peaks and troughs of the business cycle and is highly correlated with consumer conditions such as employment levels and earnings.

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 September 2020.