LAST WEEK – KEY TAKEAWAYS
Markets: President’s diagnosis elevates uncertainty
- Having spent most of the week waiting for news about a further package of measures to support the country’s economy (see US section), US shares fell on Friday after US President Donald Trump announced that he and the first lady had tested positive for coronavirus.
- Omnis view: With less than a month to go before voting day, President Trump’s diagnosis has made what was already a contentious presidential election even more unpredictable. The markets dislike uncertainty, so US shares should continue to fluctuate over the next few weeks and until a winner is confirmed.
UK: EU legal action weighs on pound
- The pound strengthened against the US dollar at the start of the week as the Bank of England appeared to rule out negative interest rates in the immediate future and amid optimism that the UK and EU could agree a free trade deal ahead of the October deadline;
- However, the pound handed back some of those gains after the EU announced it would take legal action against the UK in response to the Internal Market Bill which would alter the terms of the Brexit withdrawal deal agreed at the start of the year;
- In other news, revised figures released by the Office for National Statistics showed the UK economy shrank 21.5% in the second quarter compared to a year earlier, a slight improvement on the 21.7% decline previously reported.
- Omnis view: The focus has turned to when the UK and EU will enter into the final, intensive stage of negotiations, referred to as ‘tunnel’ or ‘submarine’ talks, which the markets would welcome. The two sides still need to make progress on issues such as fishing rights and business regulations, so whether they reach that stage before the EU’s summit on 15th October remains to be seen.
US: Slowing jobs market highlights urgency of new relief package
- According to the non-farm payroll report, employment figures closely monitored by the Federal Reserve (US central bank), the US economy created 661,000 jobs in September and the unemployment rate dropped by 0.5% to 7.9%;
- After delaying a vote on another round of economic support measures to allow time for further talks, Congress (the lower house of US politics) approved the Democrat’s scaled-back proposal, although it was rejected by the Senate, the upper house which is controlled by the Republican party, and the Trump administration.
- Omnis view: The pace of job creation slowed considerably in September following much higher figures in July and August, putting pressure on politicians to agree on a new relief package. Both sides pledged to continue talks, but the likelihood of a deal before the presidential election is fading.
Oil: Prices fall as virus cases rise
- Oil prices fell to their lowest levels since June due to concern that the rising number of coronavirus cases in various countries could lead to new lockdowns and slow the global economic recovery.
- Omnis view: Oil prices fell because a drop in economic activity would reduce demand, as happened earlier in the year. Lower oil prices hamper stock markets with a lot of energy companies, such as the UK’s FTSE 100.
LOOKING AHEAD – TALKING POINTS
- Monday- Final estimate of business activity in the UK, EU and US in September; EU retail sales in August;
- Tuesday- US imports, exports and balance of trade in August;
- Friday- UK economic growth in August.