Market Round-up: 28 - 2 October

Thomas Watts


This week

With worries over a second wave of COVID-19 infections washing over Europe, the past week allowed investors to take heart from Asian economic data, recouping some of the heavy losses endured the week before. 

The first half of the week saw global indices bounce back sharply as Chinese data showed factory activity extended solid growth in September, as the nation’s crucial exports sector accelerated on improving overseas demand, underlining a steady economic recovery from the Coronavirus shock. With a reading over 50 indicating growth whilst under 50 pointing to contraction, China’s manufacturing Purchasing Manager’s Index (PMI) rose to 51.5 in September from 51.0 in August, coming in above analysts’ consensus of 51.2, acting as a sign that the world’s second largest economy was recovering quicker than anticipated from the economic effects of COVID-19. 

Signs of a recovery in Asia helped the European banking sector recover from the all-time lows it had plumbed the previous week.  Monday saw the index surge 5.6% in its first session of gains in eight days. Leading the way was a resurgent HSBC, rising 8.9% after Chinese insurance group Ping An, the biggest shareholder in the British listed bank, boosted its stake to 8.00% from 7.95%. Although the increase may seem paltry, it still constitutes a purchase of 10.8m shares at an average of HK$28.29 each. As the Asian insurer looks to match its liabilities with income from its portfolio, the thinking is that if HSBC reinstates its previous dividend, the insurer will be locking in a c.12% yield. 

With Asian economies seemingly well on their way to recovery, economic data from the US showed that the west is still very much mired in the fallout from the Coronavirus. The world’s largest economy suffered its sharpest contraction in at least 73 years in the second quarter because of the disruptions from the pandemic, the government confirmed on Wednesday. Data showed that US GDP plunged at a 31.4% annualised rate last quarter, the deepest drop in output since the government started keeping records in 1947. 

With the US firmly in the spotlight, largely due to the first televised presidential debate between Donald Trump and Joe Biden, unemployment numbers released on Friday took on added significance. Data showed that the US Added 661,000 more jobs this month, although sounding impressive, the number was some way short of analyst’s expectations of 900,000.

Next week

In a week that will see US President Donald Trump and his wife stuck in the White House quarantining after being diagnosed with COVID-19, many will be wondering what to make of it all as the US presidential election draws ever closer.

What they have been making in the US over the last month should become evident on Monday as the Institute for Supply Management releases its Non-Manufacturing PMI data. With North America’s manufacturing sector bouncing back strongly from the nadir reached in March and April, many will be hoping that this trend can continue. The data is useful for economists as it acts as a leading indicator of economic health, with businesses reacting the quickest to market conditions and their purchasing managers hold perhaps the most current and relevant insight into the company's view of the economy. The survey is also respected due to its broad nature with over 300 respondents to rate the relative level of business conditions including employment, new orders, prices and inventories.

Our attention should switch to the continent by midweek as Europe gears up for its ECOFIN meetings. The summit is usually held in Brussels and attended by Finance Ministers from EU member states. They discuss a range of financial issues, such as euro support mechanisms and government finances. The meetings are closed to the media but officials usually talk with reporters throughout the day, discussing how the meetings behind closed doors are progressing.

Investors will pay such elevated attention to these meetings as ECOFIN is considered the Eurozone's broadest financial decision-making body. The council coordinates economic policies of the 19 member states and their initiatives and decisions can have a widespread effect on the Eurozone's broader economic health. 

The coming week is rounded off on domestic shores as the Bank of England’s Financial Policy committee releases its latest meeting minutes along with an accompanying statement which includes detailed analysis on the stability of the financial system, an assessment of potential risks to financial stability, and recommendations to protect and enhance the resilience of the UK financial system. With COVID-19 cases seemingly on the rise in the UK, the report should make for fascinating reading.

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.