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Track and Trace, Trick or Treat? – Market Commentary October 2020

Posted: 28th October 2020   |   Share

By Sarah Ryman

Trumpkin

For fear of adding to the “contagious pessimism” in the market as Andy Haldane, the Bank of England’s chief economist warned at the start of this month, I will try to look for the positives this time. 

Track and Trace seems to be becoming more effectively established. There is vaccine progress and personally I managed to escape the confines of my shed to visit Cornwall for the first time! Anyone who’s not been should go – it’s stunning!

Official figures showed that the UK economy contracted only 19.8% in the second quarter of 2020 when compared to the previous quarter which was marginally better than the estimated 20.4% decline. The world appears to be slowly emerging from a pandemic that has resulted in the most severe global economic contraction since the 1930s. 

UK

The UK grew in August (okay it was only 2.1% but growth is growth!). Whilst the reading released this month shows the fourth consecutive month of growth levels do remain depressed as the UK struggles to recover from Covid-19. GDP remains 9.2% lower than it was before the pandemic hit and this reading was lower than market expectation of 4.6%.

The Bank of England governor Andrew Bailey highlighted this month that the central bank will not hesitate to intervene if a rise in cases hits the economy. Such comments suggest that they may be considering another round of quantitative easing next month as unemployment continues to deteriorate to its highest level in three years and consumer confidence fell for the first time in six months.

The UK government’s introduction of a tiered system of restrictions has seen pubs and bars shut in areas facing strictest ‘Tier 3’ lockdown rules and retail sales have fallen sharply this month. The increasing number of cases adds to the risk of the UK’s economic recovery being challenged further but provides an opportunity for e-commerce sales to thrive as firms look to boost their online capabilities. M&S is adding more than 500 temporary Christmas employees as they prepare for “the most digital Christmas yet” and alfresco dining is on the rise. 

EUROPE

The European Central Bank (ECB) is considering injecting more monetary stimulus as the Eurozone recorded its second consecutive month of deflation. Consumer Price Inflation (CPI) fell to a four-year low of -0.3 in September which is the first time the area has had two consecutive months of deflation since 2016. Many economists are forecasting that the ECB will increase the size of its emergency bond buying programme from EUR1.35 trillion in December. Christine Largarde highlighted that inflation “is expected to remain negative over the coming months”.

The labour minister in Germany, Hubertus Heil, plans to give employees the legal right to work from home whilst Spain plans to invest EU coronavirus recovery funds in green energy. 

Clarity on Brexit is not forthcoming but time is running out. 

US

Donald Trump says not to be scared of Coronavirus as he seemingly recovers from the disease and continues on his campaign trial unscathed. In fact more so he seems to have ultimate immunity and told thousands of supporters that he could give them “a big fat kiss” at a rally in Florida! Meanwhile the US has over seven million confirmed cases and over 200,000 deaths since the start of the pandemic according to data from Johns Hopkins University and US hospitalisations are on the up. This in conjunction with the US employment data highlighting a continued slowdown in the economy with the unemployment rate now standing at 7.9% should make for an interesting final run in the election battle as early voting suggests a huge turnout in this US election. Just in time for any possible election related cases, Amy Coney Barrett has been confirmed to Supreme Court by the US senate which cements the courts 6-3 conservative majority. 

Okay, I couldn’t quite master full optimism but perhaps there are some glimmers of hope for us to cling to as we head towards winter.

 

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