Over the weekend, Prime Minister Boris Johnson announced a month-long lockdown to begin on Thursday 5th November in a hastily organised press conference after information was prematurely leaked to the press. The new restrictions replace the tiered system that has been in force for less than three weeks.
The European Central Bank (ECB) delivered a promise to provide additional monetary stimulus by December to fight the weakening economic outlook, with the unusual clarity of their message surprising market commentators. More quantitative easing is expected, along with a loosening of lending criteria to banks.
The US economy also bounced back with a record yet temporary surge of growth in Q3 as businesses reopened and stimulus cash powered consumer spending, reversing much of the collapse stemming from lockdowns. GDP grew by a record 7.4% quarter-on-quarter to end around 3.5% below the pre-pandemic peak. As in Europe, the outlook for Q4 is gloomier, with 11 million fewer workers on payrolls and a deadlock extending over a new stimulus package.
The general sense of worsening sentiment within Western economies drove a week of negative equity market returns in Pound terms, with Europe, the UK and US feeling the brunt, falling by between 4.8% – 6.2%. Notably, popular tech and growth stock names in the US sold off heavily as their results didn’t meet investor expectations and forward guidance was less positive.
While Emerging Market, Asian and Japanese equity markets also fell, they did so by much less, again reflecting their ongoing superior handling of the virus. Asian equities were the top performers with a loss of -1.3%, with Japanese and broad Emerging Market equities further back (-1.6% and -2% respectively).
UK Gilts and index-linked Gilts enjoyed a strong week, countering equity market weakness and rising by 1.2% and 2.1% respectively. The gold price fell by 0.5% in Pound terms but provided protection for investors relative to equities, while the silver price fell by 3.3% despite a late-week rally.
This week is set to be dominated by high-level, macro events. The US Presidential election will take centre stage on Tuesday 3rd November, though the result may not be immediately apparent given the enormous number of postal ballots that have been cast and could cause delays. Later this week the US Federal Reserve conducts its monthly meeting, as does the Bank of England which may now look to provide additional monetary support as we head into lockdown.
Market views by Ollie Stone – Head of Portfolio Management and Fairstone Private Wealth Ltd (2nd November 2020)