LAST WEEK – KEY TAKEAWAYS
MARKETS: SHARES FALL AMID PROSPECT OF NEW LOCKDOWNS
- Concerns about a second wave of coronavirus infections in the UK and Europe and the potential impact of tighter lockdown restrictions on the nascent economic recovery weighed on the markets;
- There was further bad news for global shares as business activity appeared to slow in September in some of the world’s biggest economies (see Global section)
- However, the technology sector, one of the strongest performers since the correction in March and April, rallied towards the end of the week, helping the markets regain some of the earlier losses.
- Omnis view: While there were concerns at the start of the week that we were witnessing the beginning of another market shake-out, hospitalisation and mortality rates have remained subdued so social distancing rules can be kept more lenient. They may slow economic activity, but not to the same extent as earlier in the year.
UK: GOVERNMENT LAUNCHES WINTER ECONOMIC PLAN
- UK shares rose as the Chancellor Rishi Sunak announced a new set of measures to help offset the impact of the pandemic on the domestic economy;
- As part of his Winter Economic Plan, Mr Sunak said he would replace the furlough scheme with a wage subsidy for the next six months, keep VAT at 5% for the hospitality and leisure industries until March and extend the emergency loan schemes until the end of November.
- Omnis view: The markets welcomed these latest measures because they should help to protect at least some jobs and businesses. The government has played an important role in supporting the UK economy to date, but any additional steps may only come in response to the kind of bad news we witnessed last week.
GLOBAL: BUSINESS ACTIVITY SET TO SLOW IN SEPTEMBER
- According to preliminary figures released by research firm IHS Markit, business activity continued to increase in September in the UK, Europe and the US, although at a slower pace than the previous month;
- As might be expected in the current climate, the services sector, which includes the hospitality, leisure and travel industries, experienced a drop in activity in all three cases, but the manufacturing sector made up for it.
- Omnis view: The economic recovery from the first wave of the coronavirus appears to have been temporarily halted as the steady rise in new cases has led to a tightening of social distancing rules. However, as we mention above, activity is unlikely to slow as much this time around as many people and businesses have adapted to the challenges.
US: FED APPEALS FOR GOVERNMENT SPENDING
- Jay Powell, chair of the Federal Reserve (US central bank), told US politicians the country’s economic recovery would stall if they fail to agree to a further relief package as the impact of the measures launched in March fades.
- Omnis view: Mr Powell argued that the government must take its share of the burden as some parts of the economy need more support than lower interest rates. The Republican and Democratic parties are struggling to agree on a new package of measures, although both sides claimed they were keen to make progress last week.
LOOKING AHEAD – TALKING POINTS
- Wednesday- Japanese retail sales in August; final estimates of economic growth in second quarter in the UK and US;
- Thursday- EU unemployment rate in August;
- Friday- Japanese unemployment rate in August; US non-farm payroll report (job creation) in September.
- Brexit talks resume between the UK and the EU today as the deadline approaches for the two sides to agree a free trade deal.
- The first debate between US President Donald Trump and his challenger, Joe Biden, takes place on Tuesday.