Monthly Market Pulse: October 2020

A second wave of the Covid-19 pandemic is intensifying and more countries have started to reapply tight restrictions on social life to counter a rise in infections. Germany’s cases have risen above 6,000 for the first time since April and London was put in the second-highest tier of a new three-tier system for local restrictions in England. Despite the grim economic and unemployment outlook in the UK, the housing market continued to gather momentum in September, with the average UK house price rising by 5% year-on-year, the strongest growth in four years. A recent report by Capital Economics titled ‘The thin edge of the inflationary wedge’ concludes that we should look through any rebound in inflation over the next year.

Chart of the month: UK monthly GDP index

Politics

• More countries reapplied tight restrictions on social life to counter a rise in Covid-19 infections. Mr. Macron imposed a 9pm curfew on Paris and eight other French cities.
• A new three-tiered system for local restrictions was introduced in England, which caused outrage in the Liverpool region, the first area to be put in the highest tier.
• Donald Trump’s doctor said that the president had tested negative for Covid-19 and is “not infectious”, a week after he left hospital having contracted the disease.

Business & Economics

• The IMF thinks that the world economy will shrink by 4.4% this year, an improvement on its previous estimate, and grow by 5.2% next year. The fund warned that although the outlook is improving, “prospects have worsened significantly” in some emerging and developing economies, with extreme poverty up for the first time in two decades.
• As the initial UK jobs-retention scheme winds down and a new plan is put in place, the outlook for jobseekers is grim. Unemployment has doubled to 2.7m since April.
• China’s exports and imports in September rose at the fastest rate in 2020. Car sales rebounded, registering a quarter of growth for the first time in two years. Forthcoming data are expected to show China’s GDP growth rate has returned to pre-Covid levels.  

Real Estate

• September saw the strongest annual house price growth in four years. House price growth continued the strong momentum witnessed over the summer and in September rose by 5% year-on-year, the largest increase since September 2016.
• Prices were up by 0.9% in September compared to August, down from 2% month-on-month increase in August and 1.7% in July. UK house prices are still up by 2.5% year-to-date during the first 9 months of the year compared to the same period last year.

Equity Markets

• Markets remain volatile. Investor expectations for a comprehensive coronavirus aid package before the November election were down-throttled as Donald Trump and House Speaker Nancy Pelosi struggle to strike a stimulus deal due to political gambits.

FX & Commodities

• Gold and silver prices remain turbulent with bulls and bears battling over the direction of precious metals. Weak US dollar, expectations of more fiscal stimulus measures from the US before the election and unsolved US-China tensions continue to support gold but price volatility is to be expected amid big swings in the USD and real yields and price may continue oscillating in the absence of a needed bullish catalyst.
• US Dollar turbulence has continued in recent weeks with the Greenback getting whipsawed by fiscal stimulus talks and political uncertainty. This theme might linger in the weeks ahead with investor angst and speculation swirling around potential outcomes for the fast-approaching presidential election.

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