Weekly Market Insight

Latest Economic & Market Update 19th October 2020

19th October 2020

Good afternoon, it is October 19th 2020 and here is your economic and market update from BlackBee. 

Today’s focus:

  • Stocks break a three-day losing streak.
  • EU member countries will run a €976 billion deficit this year (FT).
  • AIB cuts deposit rates.

A rise in Covid-19 cases in the US and Europe has been weighing on investor sentiment recently. On Friday European and American stocks broke a three-day losing streak as the S&P500, Dow Jones and Stoxx Europe 600 climbed 0.01%, 0.39% and 1.26% respectively. Data released in the US showed that the value of retail sales rose at its fastest pace in three months with sales increasing 1.9% in September from August helping to push stocks higher despite rising cases of Covid-19, lower industrial production figures and contractions in manufacturing output for the month of September in the US. The yields on 10-year US treasuries climbed one basis point on Friday to 0.74% and gold fell 0.4% to $1,899.29. Source: Bloomberg

Draft 2021 budgetary plans for EU countries have been made available on the European Commission website. Analysis from the Financial Times indicates that there will be an aggregate fiscal deficit of €976 billion this year for the 19 country bloc. This totals 8.9% of GDP which is nearly 10 times the level of last year. A forecast of a €700 billion shortfall in budget deficits in 2021 is expected, resulting in the current budget deficits remaining high. Such levels of increasing deficit would typically ring alarm bells among investors, as they did in 2010, but the ECB bond purchasing programme has kept borrowing costs low so far. This unprecedented fiscal spending, especially the furlough schemes adopted in Western Europe, have been vital in preventing a downward spiral in the economy and fiscal support will need to continue as long as the pandemic persists.  

AIB are cutting most of their deposit rates to near zero from January, meaning thousands of investors will earn no return on their deposits. Although there has been deflationary pressure as of late due to the effects of Covid-19, with the annual inflation rate standing at -1.2%, once inflation returns, depositors will see the value of their money erode away. In such a low interest rate environment, investors are searching for yield to earn a return on their money and protect against inflationary pressure when it returns. Alternative asset classes such as healthcare and commercial property have seen inflows of investments as investors broaden their portfolios.

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

Global Market Update
(as at close of markets 16/10/2020)