The Lowdown │ Global Markets to 12 October 2020

The Lowdown Global Markets to 12 October 2020

Published October 12, 2020


  • President Trump is declared Covid-free as the election draws nearer.
  • The World Health Organisation reports a record one-day increase in global cases.
  • In China, huge tourism revenue and optimistic news on the Covid front benefit both the currency and the stock market.
  • It’s the final quarter of the year, which means the US election, Brexit and US corporate earnings season.
  • The 2021 outlook for global equity markets remains promising: key political questions will be answered, and a vaccine will be more likely.

Global Market Summary

In the US, President Trump’s recent but short-lived bout of Covid-19 has caused concern – particularly so close to the election next month.
The Democrats’ challenger Joe Biden is currently ahead in the polls, but given Trump’s shock victory four years ago, questions are being asked about just how much such polls can be trusted. Nobody is writing him off just yet, and now that he is officially no longer a Covid risk, he is back on the campaign trail.
The World Health Organisation reported a record one-day increase in global Covid-19 cases on Thursday. With Europe experiencing an unprecedented surge in numbers, governments, administrations and the WHO itself remain extremely anxious.
In the UK, Health Minister Matt Hancock has warned that the country is at a “perilous moment”, while many parts of northern England and Scotland are now seeing the introduction of tougher measures governing social interaction.
On Monday, Prime Minister Boris Johnson is expected to announce further restrictions – possibly a three-tier lockdown system according to which every region in the country will be classified, based on Covid numbers.
Chancellor Rishi Sunak will also be announcing details of the next stage of the Jobs Support Scheme, introduced to help businesses most affected by coronavirus shutdowns (particularly ones in the heavily hit hospitality sector). The UK economy is still 9.2% smaller than it was before the pandemic, and there is now real concern that a second wave over the winter will mean even more hardship for many people.
In Asia, the Chinese market reopened after the Golden Week holiday period (a seven-day celebration that sees gatherings of families and friends, generating a great deal of tourism). According to official figures, some 600 million people travelled within the country as part of the event, generating around US$68.8 billion in tourism revenue.
While much of the world is still struggling to contain the virus, pictures from China showed huge crowds gathering in train stations and amusement parks: China claims to have only 205 active Covid-19 cases out of a total population of 1.4 billion.
This positive news on the Covid front resulted in the renminbi staging its biggest rally for fifteen years, while China’s leading stock market indices rose on positive economic data and the rising odds of a Joe Biden presidency in the US.
More globally, following a positive third quarter for world stock markets, various forthcoming events could either extend or derail the current bull market as we enter the final twelve weeks of the year. Beyond Covid, three other factors are likely to influence world events over the next three months: the quarterly corporate earnings season (possibly the most influential), the US presidential election on 3 November… and the culmination of over four years of Brexit manoeuvring. All of these will have considerable influence on stock markets and asset allocations as we enter 2021.
Central banks and governments are likely to issue supplementary announcements about further stimulus packages to support any additional weaknesses in the global economy created by Covid. However these events play out, we continue to believe that there will be significant spending on global infrastructure over the next decade, aligned with more emphasis on ecological and sustainable investing.
Global equity markets have nudged higher over the past five trading days, catalysed by the prospect of further stimulus and news of President Trump’s new Covid-free status, and hinted at by numerous tweets from him.
As a result, the US market is now on track for its best week since July, while a number of European Bourses have been boosted by their travel and leisure sectors: these rallied on slightly improved sentiment, but concerns over a dramatic rise in Covid cases could well dampen this euphoria over the coming weeks.
But it was China and its currency that made the financial headlines last week. In fact, flows into Chinese equities and bonds over recent weeks have been strong as a Biden win has become increasingly likely. A Trump win or a contested result would negatively impact China.
We think many of the global equity markets will rally higher between now and the end of the year. But the forthcoming corporate earnings session will be crucial if the “V”-shape recovery is to be bolstered. Should forecasts be exceeded, then the markets are likely to benefit. Any that fall short are likely to suffer.
Inevitably, corporate earnings announcements from the technology sector will be scrutinised closely for further short-term benefits generated by stay-at-home customers and online shoppers. Many of these businesses are often given a boost by end-of-year seasonal festivities. But this is no normal year: corporate guidance statements will be analysed very carefully, and assessments made about future quarters.
Nevertheless, the outlook for global equity markets in 2021 is still better than for this year. The Brexit saga will finally be over, the US will be just beginning a Trump or Biden four-year tenure in the White House, and we will be closer to having a vaccine. All this should help markets and investors remain optimistic, and should enable the global economy to start to recover – assisted by loose central bank policies.