LAST WEEK – KEY TAKEAWAYS
MARKETS: NEW LOCKDOWNS CONCERN INVESTORS
- Global shares fell as the number of coronavirus infections in the US and Europe continued to rise, and many European countries were forced to reintroduce lockdown restrictions in an effort to contain the spread;
- There was further bad news for US shares as technology companies, which had been driving the markets since the correction in March and April, dropped despite beating profit forecasts (see ‘Corporate earnings’).
- Omnis view: The markets are concerned that new lockdowns will slow economic activity and prolong the global recovery from the pandemic. However, a correction of the same magnitude as earlier in the year seems unlikely at this stage as authorities and businesses are better equipped to deal with the surge.
US: ECONOMIC GROWTH REBOUNDS IN THIRD QUARTER
- US shares temporarily rallied after figures released on Thursday showed the country’s economy grew by 33.1% in the third quarter compared to the previous quarter, its fastest pace in 75 years.
- Omnis view: Growth bounced back strongly in the third quarter, thanks in large part to the impact of the trillion-dollar relief package launched in March, but the economy still has not recovered to pre-pandemic levels. President Trump tried to capitalise on the news on the campaign trail, although whether it is enough to overcome Joe Biden’s lead in the polls remains to be seen.
EUROPE: ECB SIGNALS MORE SUPPORT TO COME
- According to figures published on Friday, the EU economy beat expectations to grow by 12.7% in the third quarter compared to the previous quarter;
- Meanwhile, the euro weakened against the US dollar after the European Central Bank (ECB) decided to leave interest rates unchanged and said it would take further steps to support the region’s economy as many countries returned to lockdown.
- Omnis view: As Europe entered the pandemic before much of the rest of the West, including the US, the return to negative growth in the third quarter is somewhat ominous. The ECB held fire this time, but it is likely to introduce additional measures soon.
JAPAN: CENTRAL BANK KEEPS RATES ON HOLD
- The Bank of Japan also left interest rates unchanged following its meeting on Thursday, and it lowered economic growth forecasts for 2020 but upgraded the outlook for 2021.
- Omnis view: Japan largely has the pandemic under control which has allowed economic activity to pick up again, so the central bank was not expected to take any action. That said, the markets will welcome its continued supportive policies.
CORPORATE EARNINGS: PROFITS RISE AT US TECH COMPANIES
- Facebook, Amazon, Apple, Alphabet (parent company of Google) and Microsoft beat forecasts when reporting earnings in the third quarter;
- However, shares in all but Alphabet fell as they issued cautious outlooks for future profits due to the uncertainty caused by the pandemic.
- Omnis view: US tech firms have performed strongly since the correction in March and April, so the gloomy forecast weighed on the markets. Overall, US companies are expected to report a drop in profits of 9.8% in the third quarter compared to a year earlier, a big improvement from the start of earnings season.
LOOKING AHEAD – TALKING POINTS
- Wednesday- US imports, exports and balance of trade in September;
- Thursday- EU retail sales in September;
- Friday- US non-farm payrolls (job creation) in October;
- Saturday- Chinese imports, exports and balance of trade in October.
- Thursday- interest rate decisions by the Bank of England and Federal Reserve (US central bank).
US PRESIDENTIAL ELECTION
- The US presidential election takes place on Tuesday. The latest polls show Joe Biden as the favourite to win, but a Trump victory cannot be ruled out.