Weekly Market Insight

Latest Economic & Market Update 21st September 2020

21st September 2020

Good afternoon, it is September 21st 2020 and here is your economic and market update from BlackBee. 

Today’s focus:

  • Markets begin week weary of more restrictions following European increase in cases
  • Added US uncertainty due to Supreme Court Judge replacement and November’s election

The balancing act governments face between reopening economies following Q2 lockdowns and avoiding further public health chaos is extremely challenging. By trying to keep the lights on in tourism and hospitality sectors, or gradually returning workers to the office as seen in the UK and France, infection numbers have increased and this is clearly worrying investors. “More than half of European countries have reported a greater-than-10% increase in cases in the past two weeks.” said WHO’s regional director for Europe, Dr. Hans Kluge last Thursday. In a trend similar to Dublin’s Level 3 restrictions imposed over the weekend, UK Health Secretary Matt Hancock was unable to rule out a second national lockdown. At time of writing on Monday, European equity markets are all in the red with the EuroStoxx 50, FTSE 100, CAC 40 and DAX all down in a 2.80 – 3.10% range

The risk off sentiment is evident by investors purchasing US Treasuries as safe-haven assets. Compared to Friday evening, 10 Year UST are 4 basis points tighter in yield. As the demand in the market for US Treasuries increases, the bonds’ prices rise. Bond yields tighten when prices go up, which can be seen in the case of 10-Year Treasuries. CDS spreads have widened since Friday indicating an increase likelihood in a credit event (bankruptcy, coupon payment failure or debt restructuring) by the underlying debt’s issuer. The spread in European benchmark iTraxx Europe index, comprising of 125 equally-weighted European names with 3, 5, 7 and 10-year maturities, is just over 1 basis point wider. Furthermore, the iTraxx Crossover spread has widened by 21 basis point. The iTraxx Crossover index comprises of 30 equally weighted credit default swaps on the most liquid sub-investment grade European corporate entities.

In the US, Justice Ruth Bader Ginsburg, a stalwart liberal on the US Supreme Court since 1993, died at the weekend at the age of 87. US Supreme Court justices, who receive lifetime appointments, play an enormous role in shaping US policies around the nation’s most divisive issues including abortion, LGBT rights, gun rights, religious liberty, the death penalty and presidential powers. There is now a hotly contested race between Democrats and Republicans over who to appoint as Ms Ginsburg’s replacement. This is likely to lead to more friction in the US, in addition to who is best to lead the country for the next 4 year presidential term. On Monday, S&P 500 and Dow Jones futures are negative, down 1.417% and 1.685% respectively. Since March 16th, MSCI US Equity index has grown by 53%. With so much uncertainty with elections, further outbreaks and lockdowns, US equities are in a highly sensitive place right now. (Sources: RTE, Bloomberg)

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

Global Market Update
(as at close of markets 18/09/2020)