Global Markets – 3rd Quarter September 2020

Even though September ended as a down month, overall Q3 was positive. All the major indices improved over the quarter the S&P 500 up 8.2%,the NASDAQ up 11.0% and the Dow Jones Industrial Average up 7.4%. Big Tech (Amazon, Apple, Alphabet, Facebook and Microsoft) counters were some of the best-performing stocks over the past quarter.

The Federal Reserve’s use of average inflation targeting suggests that rates could be almost zero bound up to and including 2023. Markets reflected ongoing uncertainty in the later part of Q3 amid a resurgence of the virus in Europe as well as a continuation of the number of new cases in various U.S. States. Adding to the uncertainty is the upcoming Presidential election on the 3rd November with its inherent problems. U.S. unemployment numbers declined down to 8.4% in August from July’s 10.2% and below consensus of 9.8%.

The provision of additional fiscal stimulus measures remains deadlocked as the parties, Democrats and Republicans, dispute as to the quantum of the stimulus to be provided. Industrial production continued to improve in August but at a considerably slower rate than previously.

Retail sales also showed signs of improvement with food and beverage counters remaining particularly sought after. Consumer discretionary counters were in demand particularly those involved in distribution as online shopping became the order of the day. Airline companies were under pressure as passenger numbers declined sharply. Energy stocks also came under selling
pressure as demand for fuels declined sharply.

Eurozone equity markets delivered an almost flat performance over the quarter in local currency terms. Economic data continued to disappoint and sharply rising Covid-19 infections especially in France and Spain had a profoundly negative effect on local markets. New restrictions to contain the virus were announced although these were specific to the areas rather than to the Eurozone as a whole. Financial and energy stocks both came under selling pressure with consumer discretionary being the exception and advancing.

Of major significance was the announcement by the EU of the scale of the recovery fund which was approved after protracted and at times fiery negotiation. The fund will consist of Euro 390 billion in grants and Euro 360 billion in loans. The magnitude of this recovery package is likely to have a marked effect on particularly those economies worst impacted by the coronavirus. Various European countries extended their furlough schemes which are designed to assist jobs for the duration of the crisis. Business activity declined with the PMI declining from 51.9 in August to 50.1 in September. Eurozone annual inflation came in at a negative -0.2% in August following July’s positive 0.4%.

Renewed fears surrounding a contentious Brexit continued to negatively impact investor confidence whilst fears of a second wave of Covid-19 did little to improve market sentiment. Rising infection rates necessitated the reimposition of localised restrictions once again impacting on consumer spending. This in turn resulted in U.K. focused and mid-cap equities in particular performing badly. In line with global markets counters in the financial and energy sectors also came under considerable selling pressure. Sterling strength against a weaker dollar weighed particularly on internationally exposed large-cap counters. Considerable merger and acquisition interest was displayed by overseas companies in U.K. quoted companies.