Markets open flat after WHO warning

Markets open flat after WHO warning 150 150 Realm

The World Health Organization has warned of a “very serious situation” as coronavirus cases rise significantly across Europe. Worldwide, the number of cases has now reached 30 million. Looking for positives for the markets to digest, talks this week between the UK and the EU were described as “useful” by the UK government with Ursula von der Leyen, President of the European Commission saying in an interview with the F.T. that she’s “convinced” a deal can be done. 

 

Global Macro

  • The Bank of England voted unanimously to maintain Bank Rate at a record low of 0.1% and the size of its bond-buying program at £745 billion during its September meeting. Policymakers noted that domestic economic data have been a little stronger than expected in August, while the outlook for the economy remains unusually uncertain due to the coronavirus pandemic and recent Brexit developments, leaving the door open to negative interest rates and more QE. CPI inflation is expected to remain below 1% until early 2021 and unemployment will probably remain elevated for some time. The central bank also said it does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.
  • Building permits in the United States went down 0.9 percent from a month earlier to a seasonally adjusted annual rate of 1.470 million in August of 2020, after hitting a six-month high in July and compared with market expectations of 1.52 million. Permits for buildings with five units or more declined 17.4 percent to a rate of 381 thousand while single family authorizations increased 6 percent to a rate of 1,036. Across regions, permits decreased in the Northeast (-13.1 percent to 119 thousand); the Midwest (-16.1 percent to 188 thousand) and the West (-1.1 percent to 368 thousand), while they rose in the South (6 percent to 795 thousand).
  • The number of Americans filling for unemployment benefits rose by 860 thousand in the week ended September 12th, compared to 893 thousand in the previous period and above market expectations of 850 thousand. It was the third consecutive week with claims below 1 million, but the number remained well above 665 thousand filed at the peak of the Great Recession in March 2009, suggesting the labor market recovery was stalled amid a spike in COVID-19 cases. Initial claims started to fall in May from a record 6.867 million reached back in March as many non-essential businesses started to reopen following weeks of closure due to the pandemic.
  • The Eurozone consumer prices dropped 0.2 percent from a year earlier in August 2020, the first decline since May 2016, due to lower cost for energy products (-7.8 percent vs -8.4 percent in July) and non-energy industrial goods (-0.1 percent vs 1.6 percent). At the same time, inflation slowed for both services (0.7 percent vs 0.9 percent) and food, alcohol & tobacco (1.7 percent vs 2.0 percent). The annual core inflation, which excludes volatile prices of energy, food, alcohol & tobacco and at which the ECB looks in its policy decisions, was confirmed at an all-time low of 0.4 percent in August.
  • Construction output in the Eurozone shrank 3.8 percent year-on-year in July of 2020, following a downwardly revised 4.8 percent fall in June, and marking the 6th straight month of contraction in the construction sector due to the coronavirus pandemic. Building activity went down 4.3 percent (-5.6 percent in June) while civil engineering rebounded (0.4 percent vs -1.7 percent). Among the bloc’s largest economies, construction fell 1.9 percent in Germany, 5.2 percent in France and 10.5 percent in Spain. However, compared to the previous month, construction edged up 0.2 percent.
  • On Thursday: European stocks recovered from early lows, but still ended the session notably lower, weighed down by warnings from the Federal Reserve and the Bank of England about the outlook for the economy. Continued worries about the surge in coronavirus cases, in France, the U.K. and the U.S, and fears about a no-deal Brexit hurt investor sentiment as well. US stocks saw some further downside, the major averages all moved lower, with the tech-heavy Nasdaq posting a particularly steep loss. The weakness on Wall Street came as stocks extended the sell-off seen on Wednesday after the Federal Reserve revealed plans to leave interest rates at near-zero levels for years to come.

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