Weekly Market Insight

Latest Economic & Market Update 6th October 2020

06th October 2020

Good afternoon, it is October 6th 2020 and here is your economic and market update from BlackBee. 

Today’s focus:

  • Strong exports shield Ireland’s 2020 GDP from Covid impact – Central Bank of Ireland (CBI)
  • Ageing population and future cost of pensions and healthcare require Budget 2021 consideration – CBI recommendation
  • US stocks and Treasury yields gain on optimism of stimulus package and Trump recovery

Strong exports levels will mitigate the Covid19 hit to the macro Irish economy, CBI revealed in the Q4 Quarterly Bulletin. The announcement mirrors Paschal Donoghue’s, Minster for Finance, pre-Budget 2021 comments last week. CBI updated forecasts show that year on year GDP will decline by 0.4% in 2020. This is compared to the -9% drop that was predicted in the Q3 Quarterly Bulletin. The robust exports are primarily driven by pharmaceuticals and technology.
The report also provides three fiscal recommendations ahead of the 2021 Budget. First the government should focus on “mitigating scarring effects such as long term unemployment”. This is crucial to Ireland’s recovery as it will prevent insolvencies and allow the domestic economy’s recovery to occur at an otherwise much faster rate. Secondly, the government will need to develop and provide a timeline of how the country’s increasing level of debt will be repaid. It is important to reduce deficit and debt levels to minimize the economy’s sensitivity to further shocks and maintain the AA+ sovereign debt credit rating. Lastly, CBI recommend that the Budget carefully considers the ageing of the population and it’s longer term impact on economic growth and healthcare. “Policy should be framed to meet such challenges, as failing to address them would, ultimately, be more costly.” This aligns with Blackbee’s view of the long term care sector. The State will seek to work in tandem with the private sector to meet this challenge and provide first class health care to the country’s retired population. (Source: Central Bank of Ireland)
There was a risk-on sentiment to yesterday’s trading as both equity prices and US Treasury yields increased. The S&P 500 gained 1.8% for the day, closing to its highest level (2891) in a month. The tech dominated Nasdaq Composite rose 2.3%. 10 Year US Treasury yields increased by 73 basis points and reached 0.773%, the highest since June. Yields rise as prices fall when investors sell bonds. Donald Trump left hospital on Sunday and showed his eagerness for a fiscal package to be agreed by tweeting “OUR GREAT USA WANTS & NEEDS STIMULUS. WORK TOGETHER AND GET IT DONE. Thank you!”. Nancy Pelosi spoke to Treasury Secretary Steve Mnuchin by phone on Monday with further talks scheduled for Tuesday.  (Source: Bloomberg)

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

Global Market Update
(as at close of markets 05/10/2020)