Macro views

Market Reviews - GBP (October 2020)

A roundup of factors affecting regional equity and bond markets over the month
November 2020
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Risk Disclaimer

Past performance is not a guide to future performance. The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any products that may be mentioned.

UK

The FTSE All-Share Index lost 3.8% in sterling terms during October. UK Covid-19 infections rose sharply, prompting the UK authorities to announce fresh lockdowns. While Wales began a 17-day lockdown in October, England was to enter a one-month lockdown in early November. Official data showed the UK economy grew 2.1% in August, disappointing economists’ forecasts amid slowing momentum in the services sector. Separate figures showed UK redundancies had risen at a record pace in the three months to August. Business activity gauges for services and manufacturing suggested the economy had continued to expand in October, though at a slower rate than in September. In terms of sectors, banks (7.4%) and industrial metals & mining (5.1%) outperformed while tobacco (-10.2%) and forestry & paper (-10.8%) lagged.

Risk Disclaimer

The value of investments and any income from them can go down as well as up and investors may not get back the original amount invested.

 

FTSE All-Share Total Return (TR) GBP (%)*

FTSE All-Share Total Return (TR) GBP (%)

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any products that may be mentioned.

Europe

The FTSE World Europe ex-UK Index returned -6.1% in sterling terms. October was marked by a surge in Covid-19 infections across Europe, prompting various countries to announce fresh lockdowns and restrictions. This raised fears that the eurozone economy could contract over the fourth quarter. Indeed, the eurozone’s composite purchasing manager’s index of business activity suggested the region’s economy had shrank in October following a modest expansion in the prior month, with the latest deterioration fuelled by a contraction in the services sector. Meanwhile, the eurozone registered deflation for a second consecutive month, with consumer price inflation at -0.3% for September. The European Central Bank signalled it was considering fresh monetary easing in response to the eurozone’s worsening economic outlook.

FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

FTSE World Europe ex UK TR GBP (%)*

 FTSE World Europe ex UK TR GBP (%)*

US

The FTSE All-World North America Index returned -2.8% in sterling terms over October. US Covid-19 new daily infections jumped during the month, far exceeding the peak experienced in July. US lawmakers failed to make progress in negotiations on a new fiscal stimulus package, leaving the issue unresolved ahead of November’s elections. Opinion polls indicated that presidential contender Joe Biden continued to lead in the final days of the campaign. However, there was some concern that the final outcome could be delayed given a rise in mail ballots and the possibility of a contested result. Data showed a significant slowdown in the pace of US job creation over September. A recovery in consumer spending and private investment allowed the US economy to grow by an annualised 33.1% over the third quarter.

FTSE All-World North America TR GBP (%)*

FTSE All-World North America TR GBP (%)*

Japan

The FTSE Japan Index fell 1.8% in sterling terms during October. Japan’s Tankan survey for the third quarter showed sentiment among large manufacturers remained subdued and was recovering at a slower pace than anticipated. The Bank of Japan downgraded its GDP forecast for the 2020 fiscal year, estimating a contraction of 5.5%, though projected growth of 3.6% for the 2021 fiscal year. Japanese retail sales fell for a seventh consecutive month in September, fuelling speculation that the government would announce further fiscal stimulus measures. Exports continued to decline in September, though at a slower rate than in the prior month. Despite signs of stabilisation in the manufacturing sector, Japan’s composite purchasing manager’s index for October suggested overall business activity had continued to deteriorate at a broadly similar pace to September.

FTSE Japan TR GBP (%)*

FTSE Japan TR GBP (%)*

Emerging Markets

The FTSE All-World Emerging Index returned 2.4% in sterling terms over October, outperforming the global average. China (5.5%) found support from robust economic data, with significant gains in retail sales and industrial output for September. Mexico (2.7%) was helped by improving economic data and hopes surrounding the government’s plans to boost infrastructure spending. Investor sentiment on India (1.1%) was also relatively positive. A surge in Covid-19 cases hit Eastern European equity markets, with Poland (-14.6%) sharply underperforming. Greece (-13.7%) announced regional lockdowns as its Covid-19 daily infections reached record highs. Along with Covid-19, Turkey (-12.2%) suffered from concerns over its foreign policy, with the lira trading at record lows. Russia (-8.1%) saw its new Covid-19 infections far exceed the peak witnessed in May and was also hindered by lower oil prices.

FTSE All-World Emerging TR GBP (%)*

FTSE All-World Emerging TR GBP (%)*

Asia Pacific ex Japan

The FTSE World Asia Pacific ex Japan Index was flat in sterling terms over October. Taiwan (1.2%) and South Korea (0.6%) were in positive territory over the month, bolstered by improving local economic data. New Zealand (1.6%) was also one of the bright spots. Singapore (-2.9%) and Hong Kong (-1.1%) suffered from the general deterioration in global risk appetite. Thailand (-1.8%) and Malaysia (-2.6%) were held back by political worries. Australia was flat, with weakness in its materials sector. Chinese economic data was generally supportive, with strong monthly retail sales and industrial output for September. The Chinese economy grew 4.9% year on year in the third quarter, accelerating from the 3.2% pace of the prior quarter. Under its new five-year plan, China pledged to raise domestic demand and prioritise technology development.

FTSE World Asia Pacific ex Japan TR GBP (%)*

FTSE World Asia Pacific ex Japan TR GBP (%)*

Government Bonds

Global government bond yields were mixed over October. US Treasury yields moved higher over the month, spurred by expectations of increased US government spending in the aftermath of November’s elections. In contrast, rising Covid-19 cases and worries on the economic outlook pushed eurozone government bond yields lower over October. Global economic data showed signs of slowing momentum. Eurozone consumer price inflation was at -0.3% in September, the second consecutive month of deflation. Meanwhile, the European Central Bank appeared to be readying fresh monetary easing measures to coincide with its December policy meeting. US inflation ticked up to 1.4% in September from 1.3%. Federal Reserve Chair Jay Powell called on US policymakers to agree a new fiscal relief package to help combat the drag created by Covid-19.

Corporate Bonds

Global corporate bonds were little changed over October. Rising Covid-19 cases in the US and Europe together with evidence of slowing economic momentum generally weighed on market sentiment. Faltering negotiations between US lawmakers on a new fiscal stimulus package reinforced the market’s cautious tone. Democratic Party presidential contender Joe Biden continued to lead in opinion polls ahead of November’s elections. However, there was some concern that the final outcome could be delayed given the rise in mail ballots and the possibility of a contested result. The eurozone registered a second consecutive month of deflation, with a consumer price inflation reading of -0.3% in September. The European Central Bank signalled it was considering fresh monetary easing measures in response to the eurozone’s worsening economic outlook. Corporate bond issuance slowed versus the prior month.

 

*Source: Lipper to 30-Oct-20, total return. Indices rebased to zero at 30-Sep-20

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