Monthly Market Pulse: November 2020

The UK had to bite the bullet and joined a list of other countries into officially entering a second full lockdown on Thursday 5 November. Albeit widely unwelcome among businesses and the wider population, this second lockdown is and indeed feels different. For a start, there is a clear end to it as the Prime Minister pledged to end it on December 2. Also, in contrast to the first lockdown during April and May when many construction sites shut their gates, the Prime Minister was clear that construction sites keep working. In our chart of the month, we show Capital Economics’ forecast for the different components of the UK GDP. They think that business investment will fall by a bigger 8.5% q/q in Q4 and be the laggard of the recovery.

Chart of the month: Capital Economics Components of GDP Forecast (Q4 2019 = 100)

Source: Capital Economics, Blend Network

Politics

• America’s presidential election was closer than the polls had suggested. Joe Biden won Michigan and Wisconsin in the electoral college. In the end, Mr Biden had the edge in vote-count, which prompted the Trump campaign to launch a court challenge.
• The second wave of Covid-19 worsened across Europe, leading a number of countries to impose stricter measures. The UK and France announced a second lockdown, while a number of other countries introduced curfews, ordered cafes and bars to close and announced a new state of emergency, all seemingly overwhelmed by the virus spread.
• The threat of terrorism rose across Europe following attacks in France and Austria. The UK terrorism threat level was upgraded from “substantial” to “severe”, meaning that an attack is highly likely, although this was said to be a precautionary measure.

Business & Economics

• On November 9, news that Pfizer and BioNTech had reached a breakthrough in the race to find a Covid19 vaccine fuelled a global equity rally. The companies announced that a vaccine had been found to be more than 90% effective in a late-stage trial.
• The Euro Area’s GDP expanded by 12.7% in Q3 compared to Q2, bouncing back from the recession – YoY though the Euro Area’s economy was down by 4.3%. US GDP also pulled out of recession, growing by 7.4% in Q3, although YoY it was down by 2.9%.
• Furlough – a word few knew what it means before March – was extended by Chancellor Rishi Sunak until the end of March 2021. The scheme will keep paying up to 80% of a person’s wage up to £2,500 a month and aim to “protect millions of jobs”.

Real Estate

• Annual house price growth rose to 5.8% in October, the highest rate since January 2015. This comes after several months of surprisingly strong housing market performance – September saw the strongest annual house price growth in four years.
• Despite the strength, a look at monthly price activity suggests the recent momentum may be running out of steam. UK house prices rose 0.8% month-on-month in October after taking account of seasonal effects, following a 0.9% monthly rise in September and down from 2% month-on-month increase in August and 1.7% in July.

Equity Markets

• “After the US election, the focus for investors turned back to Covid versus a vaccine.” – Mohammed Kazmi
• Airlines, hotels and aeroplane makers — three industries ravaged by the pandemic-induced collapse in travel — were among the Pfizer new’s biggest winners.
• United Airlines, Delta Air Lines and American Airlines all rallied more than 15%, Airbus was up 19% in Paris and Rolls-Royce closed the day up by 44%, its biggest ever one-day gain.

FX & Commodities

• Gold was hit hard by the news of a breakthrough in developing a coronavirus vaccine. The yellow metal dropped by almost 5% to six-week lows at $1850 after Pfizer’s announcement revived hopes of a solid global economic recovery into 2021.

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