Market Outlook Report – October 2020

Market Overview

Chancellor scraps recovery plan in favour of immediate economic measures

Boris Johnson’s latest announcement of tighter Covid restrictions across England is expected to last 6 months, prompting Rishi Sunak to focus on preventing further unemployment and business closures in the more immediate future.

In his August budget the Chancellor had initially intended to map out a long-term plan post-Covid-19 and look to improve the state of public finances, after unprecedented support in the form of the furlough scheme among others. Instead he is looking to bring in more emergency schemes, as the country heads towards a winter ruled by the virus, and expectations of a second lockdown/additional restrictions wreaking further havoc on the economy.

Relevance/ Impact 

September decline gains force and drags down European recovery

​European Equity markets are now on track for the poorest performing month since the infamous March collapse. There are increasing fears over the true economic impact a second coronavirus wave will have on the continent’s recovery.

Relevance/ Impact 

October Volatility

September and October are traditionally months which bring increased volatility in global markets. Stock price volatility has been 25% higher in October on average ever since 1928, according to Goldman Sachs.

There is no unanimously accepted reason why this occurs, with investors moving their money in anticipation of this and the release of many companies earning reports, the most favoured theories.

Relevance/ Impact 

Expectations for a weak pound

The UK currency is expected to remain under pressure as we move into the last quarter of 2020 as it is appearing to be particularly at risk against the Euro. This expectation for a weak British Pound comes as a direct result of an increasing threat of negative interest rates being introduced by the Bank of England and the apparent fragile Brexit trade negotiations which appear to be progressing very slowly as the deadline looms.

Relevance/Impact

S&P 500 and US Markets experience a bleak September

The S&P 500 has fallen 8.22% since the start of September indicating that at least for now the record-breaking rally in equity markets has begun to reflect rising market risks.

Analysts and investors have been unanimous in their view that huge fiscal stimulus has allowed markets to recover so well since March and without further support, markets will struggle to keep up the momentum seen over the summer months.

Relevance/ Impact 


Disclaimer: This document represents the opinion of Reeves Independent only and is not intended as advice and no investment decisions should be made solely on the back of this email. Always seek independent financial advice before taking any action. Past performance is not a guide to future performance. All investments carry the risk that you will get back less than you put in.

Sources:

The Guardian: Pound hit by rising Brexit worries; tech slump drags Nasdaq into correction - as it happened - https://www.theguardian.com/business/live/2020/sep/08/german-exports-trade-stock-markets-growth-halfords-easyjet-business-live

Financial Times: Pound drops after BoE ‘explores’ negative rates - https://www.ft.com/content/1124fbd1-0142-4309-ada8-e1563e64c50d

Financial Times: European stocks fall as September slide gains momentum - https://www.ft.com/content/0c1c831b-5b97-47f5-a1c1-ed7d092372fc

Financial Times: Spain’s economy faces long-lasting pandemic drag, warns central bank -https://www.ft.com/content/53ab7751-56cb-4c19-8855-43065aea6448

Financial Times: Donald Trump refuses to commit to peaceful transfer of power – https://www.ft.com/content/7036d289-a378-4e58-8416-1351c34a8115

The Guardian: Sunak axes budget in scramble for urgent measures to save jobs – https://www.theguardian.com/uk-news/2020/sep/23/sunak-scraps-budget-to-focus-on-getting-uk-through-a-winter-crisis-jobs-economy-covid-19-restrictions-coronavirus

BBC News: US election: Do postal ballots lead to voting fraud? – https://www.bbc.co.uk/news/world-us-canada-53353404