Stocks stay weak, with Europe seeing record COVID-19 cases

Intermediate

Macroeconomic/ geopolitical developments

  • Another week of hesitant equity markets, with early weakness, then indecision and finally an end of week rebound, but which failed to have any real positive impact.
  • This comes in the wake of growing COVID-19 cases across Europe and the U.K., with many countries experiencing record daily and weekly numbers of new cases, whilst more worrying the number of hospitalisations is now also significantly increasing.
eu covid map
  • This has led to more stringent lockdown measures throughout European nations, either on a local or national basis, which will likely have obvious negative implications for the economic outlook.
  • Federal Reserve speakers were in the spotlight all last week, with somewhat mixed messaging around the Average Inflation Targeting, though this has had little impact on global financial markets, with bond yields paralysed in a sideways consolidation range.
  • The Fed Chairman, Jerome Powell alongside US Treasury Secretary Steven Mnuchin testified before Congress through the week, with the main emphasis being on the need for new fiscal measures from the government.
  • However, Republicans and Democrats seem unable to come to any agreement on a new economic relief package.
  • In addition, US political relations have become even more strained in the wake of the disagreements about the timelines for installing a new member of the US Supreme Court after the recent passing of Judge Ruth Bader Ginsburg.
  • There appears to be some very modest improvement in the positions of both the EU and UK in their trade talks, which has seen the Pound slide in September slowed.
  • The U.K. Chancellor, Rishi Sunak, announced some new economic relief measures on Thursday to replace and build on some measures that were due to expire, but these announcements did little to impact financial markets.

Global financial market developments

  • Global stock markets were once more erratic last week but with an overall negative tone, mostly pushing to new correction lows for September.
DJIA chart
  • Although the NASDAQ 100 is holding support, both the Dow Jones Industrial Average and the S&P 500 look vulnerable to further downside into month-end and early October.
  • European equity indices have surrendered notable support factors this past week, signalling more significant topping patterns, with the threat of further losses into early Q4 2020.
  • In the Forex space, the theme has aggressively shifted to “risk off” with the US Dollar rallying against most major currencies, even versus the Japanese Yen, with the greenback (US Dollar), seen as the safe haven, “flight to quality” currency.
  • In turn, the “risk currencies”, the Australian, New Zealand and Canadian Dollars, have been notable casualties, reversing lower versus the USD.
  • The Pound has tried to rebound after significant September losses versus both the US Dollar and against the Euro, but GBP remains vulnerable to further losses.
  • EURUSD has confirmed a bigger Head & Shoulders Topping pattern, shifting to a more negative intermediate-term tone.
  • In the commodity space, the Oil rebound has stalled, Copper has seen a significant setback from a multi-month peak, whilst Gold has broken lower with US Dollar strength.

Key this week

  • Thursday and Friday are Chinese holidays, markets are closed.
  • Central Bank Watch: No Central Bank meetings or minutes of note all week. We get various Fed speakers through the week and ECB President, Christine Lagarde speaks Monday and Wednesday.
  • Macroeconomic data: The significant data releases this week are towards the end of the week, with the global Markit Manufacturing and US Institute for Supply Management (ISM) Purchasing Managers Index (PMI) data released Thursday and the US Employment report posted on Friday.
DateKey Macroeconomic Events
28/09/20ECB President Christine Lagarde speaks
29/09/20German CPI, US Consumer Confidence
30/09/20Chinese Non-Manufacturing and Manufacturing PMI; U.K. GDP; German Retail Sales and Unemployment; ECB president Christine Lagarde speaks; US ADP Employment, GDP and Personal Consumption Expenditures (PCE); Canada GDP
01/10/20Chinese holiday, markets closed; global Markit Manufacturing PMI; US PCE, Jobless Claims and Institute for Supply Management (ISM) Manufacturing PMI
02/10/20Chinese holiday, markets closed; Australian Retail Sales; US Employment report; University of Michigan Consumer Sentiment

Editor in chief

Steve Miley has 29 years of financial market experience and as a seasoned expert now has many responsibilities. He is the founder, Director and Primary Analyst at The Market Chartist, the Editor-in...continued

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