Challenges ahead for markets but strong gains last week

Challenges ahead for markets but strong gains last week 150 150 Realm

Coronavirus cases continue to surge. The UK government is due to announce more restrictions today. The deadline for an outline of a Brexit deal is set for later this week; fishing rights remain a major obstacle. Negotiations over a new stimulus deal will again be the focus in the US.


Global Macro

  • The number of confirmed cases of coronavirus around the world surpassed 37 million, of which more than 1 million died and near 26 million recovered, according to data released by the Johns Hopkins University. In the US, the epicentre of the disease, the number of infections surpassed 7.7 million, followed by India (7,053,806) and Brazil (5,082,637). The US has more than 214 thousand coronavirus-related deaths, followed by Brazil (150,198) and India (108,334).
  • Wholesale inventories in the US rose 0.4 percent month-over-month in August 2020, below a 0.5 percent gain in preliminary estimate. Still, it is the first rise in four months and the strongest since April of 2019. Inventories rebounded for durable goods (0.6 percent vs -0.7 percent in July), with autos rising 4.3 percent, but stalled for nondurables (following a 0.7 percent rise in July). Year-on-year, wholesale inventories fell 5.2 percent.
  • Imports to the UK advanced 2.2 percent from the previous month to GBP 50.46 billion in August of 2020, slowing from a 7 percent rise in the prior month, as the economy gradually recovers from the pandemic shock. Goods purchases went up 3.7 percent while services imports decreased 1 percent. Within goods, imports rose mostly for fuels (12.3 percent); crude materials (7.9 percent); material manufactures (1.3 percent) and miscellaneous manufactures (0.9 percent). Imports of goods increased 7.8 percent from countries outside the EU while goods purchases from the EU stalled.
  • Construction output in the United Kingdom shrank by 13.0 percent year-on-year in August 2020, following a revised 15.6 percent tumble in the previous month and compared to market expectations of an 8.8 percent contraction. All new work declined by 13.9 percent (vs -16.5 percent in July) led by private new housing (-10.4 percent vs -21.5 percent), commercial (-22.0 percent vs -19.4 percent), industrial (-42.5 percent vs -26.4 percent) and public work ( 12.2 percent vs -11.6 percent). Also, repair and maintenance dropped by 11.3 percent, compared to a 13.9 percent decline in July. On a monthly basis, construction output grew by 3.0 percent, the fourth consecutive month of growth in all work since the large fall in construction output in April. Still, the level of output remains 10.8 percent lower than pre pandemic levels.
  • On Friday: European stocks ended as the mood remained largely positive with investors focusing on U.S. stimulus talks. Expectations of stimulus from the European Central Bank after the central bank signaled readiness to slash interest rates and changing the conditions of targeted longer-term refinancing operations to support the economy contributed as well to the European markets’ uptick. US stocks moved mostly higher during trading, extending the upward move seen over the course of the two previous sessions. With the continued advanced, the major averages once again ended the session at their best closing levels in over a month.

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