Weekly Market Insight

Latest Economic & Market Update 16th October 2020

16th October 2020

Good afternoon, it is October 16th 2020 and here is your economic and market update from BlackBee. 

Today’s focus:

  • ECB prepared to impose further emergency measures – Christine Lagarde, ECB President
  • European and US equities retreat following more restrictions

The ECB will continue to be available with financial support measures to mitigate further Covid-19 economic fallout according to President Christine Lagarde. As case numbers rise across the continent and governments begin to impose new lockdown restrictions, facilitative monetary and fiscal policies will be crucial as Europe looks to withstand the current spike in uncertainty. As proven with Ireland’s 2021 budget which included an extra €4 billion available for the Department of Health, as well as support for disrupted businesses, low interest rates set by the ECB are providing tools for governments to support their economies. Ms. Lagarde described the pandemic crisis as “still [being] in the long grass for the moment and there is still a lot of work to be done”. Government and market participants will be somewhat assured by Ms. Lagarde saying “The many weapons that we have available, ranging from interest rates to forward guidance and asset purchase programs, we stand ready. We have done a lot, and if more is needed because the situation deteriorates, then we will do what is necessary.” With the key ECB interest rate currently set at -0.5% and EU members encouraged to spend and provide fiscal support, it is likely that rates will remain this low for years to come. The ECB is also aiming to ignite inflation in the monetary union, an issue that predates the coronavirus, and Ms. Lagarde stated in September that the inflation target of just below 2% is unlikely to be met in the next three years. Interest rates are generally increased to prevent inflation growing out of hand, an unlikely problem for Europe in the short or medium term. BlackBee believes that these low interest rates create opportunities for infrastructure investment assets, as well as having access to government funding such as the Fair Deal scheme. It is BlackBee’s view that this could create valuable opportunities for investors via, for example, the firm’s current real estate, social housing and healthcare product offering. (Source: CNBC)

Ms. Lagarde description of “being in the long grass” is quite accurate when looking at the equity and debt public markets. Yesterday both European and US indexes traded lower. Europe’s Stoxx 600 closed 2.1% less than the previous day while FTSE 100 dropped 1.7%. Emmanuel Macron imposed a French city curfew of 9pm to 6am while Angela Merkel and German federal state leaders introduced mandatory mask wearing in crowded places. 10-year German Bund yields tightened by 3 basis points and traded at -0.613%, the lowest since mid-March. Yields tighten as investors seek safe-haven assets which include sovereign bonds. While US equities retreated, the losses were less than in European markets. The S&P closed 0.2% lower while the Nasdaq Composite fell 0.5% for the day. (Source: FT, RTE)

Best & Worst Performers of Large Cap US Stocks on Thursday
Click image to enlarge

Global Market Update
(as at close of markets 15/10/2020)