Weekly Market Insight

Latest Economic & Market Update 17th September 2020

17th September 2020

Good afternoon, it is September 17th 2020 and here is your economic and market update from BlackBee. 

Today’s focus:

  • FOMC Policy Decision – Rates to remain near zero until at least 2023
  • Fed Chairman Powell unsure if faster than expected recovery will continue
  • OECD: Global recession not as deep as expected, 2021 recovery slightly slower than previous forecasts

Markets fluctuated yesterday in response to FOMC Policy Decision announcement and the ensuing press conference. The Federal Reserve announced that it will maintain the current 0% – 0.25% interest rate target range for years until the U.S. economy heals from the effects of the Covid-19 pandemic and the labour market normalizes. Both the Dow Jones Industrial Average and the S&P 500 turned green to session highs (+290 points and +0.6% respectively) with the prospect of years of lower borrowing costs. However, ChairmanJerome Powell provided a slight cause for concern when he was unable to state with confidence that the current economic rate of recovery would be able to continue. “The recovery has progressed more quickly than generally expected,” Powell said, while cautioning that “the path ahead remains highly uncertain”. Equity markets reacted negatively to this uncertainty with tech stocks, in particular, tumbling. Apple (-2.95%) and Facebook (-3.27%) contributed to the S&P closing 0.29% weaker for the day while the NASDAQ finished 1.08% lower than the previous day. (Source: Bloomberg)

The OECD had a similar economic outlook to the Fed in its September interim report released yesterday. The think tank’s revision from June’s 2020 outlook provided a positive reading. Although the global economy is set to contract by 4.5% this year, this is a mark up from the 6% GDP loss predicted in June. The OECD followed 2020’s improved outlook with a slower recovery rate anticipated in 2021. Yesterday’s 2021 revised GDP growth was 5%, slightly lower than 2021’s 5.2% growth released in June’s report. Although 2021’s outlook is lower than previous estimates, overall, governments, investors and businesses will be receptive of the news that this unprecedented economic contraction won’t be severe as initial forecasts. Further key points to note were the OECD’s assumption that local Covid-19 outbreaks would continue and would be targeted with local action rather than nationwide lockdowns. It also assumed a vaccine would not be widely available until late next year. Interestingly, China is predicted to be the only country to see economic growth in 2020: +1.8 per cent vs -2.6% predicted in June.

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

Global Market Update
(as at close of markets 16/09/2020)