October 2020 Investment & Economic Update

In our latest monthly investment update for October 2020, we take a look at how the global investment markets, economy and commodities are performing.

The FTSE 100 index of leading UK company shares closed at the end of September at 5,866.10, falling by 97.47 points or 1.63% during the month.

Fresh hopes of US economic stimulus measures lifted global stock markets at the start of October. However, investors remain cautious heading into the final quarter with looming US presidential elections, the search for a Covid-19 vaccine, and the upcoming no-deal Brexit deadline.

The final scheduled round of Brexit talks continues, with a more positive outlook on the deal to be struck between the UK and EU. However, a new EY Brexit tracker shows that more than 7,500 finance jobs have already left the UK for Europe, ahead of the trade deal deadline.

While trade talks are ongoing, the EU has launched legal proceedings against the UK following the UK’s new Internal Market Bill, which undermines an earlier Brexit deal.

In the UK, Covid-19 concerns remain high, with a Number 10 Downing Street briefing at the end of September warning “there’s no cause for complacency,” with both hospitalisation and death rates continuing to rise.

$1.5 trillion of additional monetary stimulus is being proposed by the Trump administration, including an extra $20 billion for the airline industry, designed to give that sector a six-month extension.

Despite the US stimulus proposal buoying markets at the start of October, a significant hardware failure saw the Tokyo Stock Exchange suffer its worst-ever outage, leaving the Japanese market closed until Friday.

It’s the first full-day suspension for the Tokyo Stock Exchange since all-electronic trading began there in 1999.

In the UK, factor activity rose again in September, for a fourth consecutive month. The growth in activity was slower than it was in August, but job losses in manufacturing appear to have slowed too.

The IHS Markit/CIPS manufacturing Purchasing Managers’ Index (PMI) for September was 54.1, with an index reading above 50 indicating expansion. IHS Markit said: “Output and new orders increased as new work intakes improved from both domestic and overseas markets.”

The British government is seeking to avoid a return to a full national lockdown, with fears of unemployment soaring into the millions. A government minister warned of the economic impacts of Covid-19, including job losses which already exceed 700,000 in the UK.

With the Coronavirus Jobs Retention Scheme coming to an end this month, Labour is warning that almost three million people working for small businesses are at risk of losing their jobs.

The Bank of England kept interest rates on hold in September at 0.1%, and started making preparations for the possibility of negative interest rates in 2021.

The Bank’s Monetary Policy Committee appears to be divided when it comes to the value of negative rates, with deputy governor Sir Dave Ramsden saying, at present, negative interest rates would be less effective as a tool to stimulate the economy. He said "If you've got negative rates in the toolbox, I feel duty bound, given my duties at the Bank, that you've then got to explore in more detail the operational considerations which would go with implementing negative rates."

The latest official price inflation figures in the UK show the Consumer Prices Index (CPI) measure of price inflation down to 0.2% in the year to August. CPI inflation fell from 1% in the year to July.

Contributing to slower price inflation was lower prices in restaurants and cafes, due to the Eat Out to Help Out scheme during August. A cut on the rate of VAT for the hospitality sector, from 20% to 5%, also contributed to the lower inflation rate.

House price growth rose at its fastest pace since 2016, according to a new report from Nationwide building society. The average house price rose by 5% in September, when compared to September last year. It means the average price of a UK house is now £226,129.

Robert Gardner, Nationwide’s chief economist, said: “The rebound reflects a number of factors. Pent-up demand is coming through, with decisions taken to move before lockdown now progressing. The stamp duty holiday is adding to momentum by bringing purchases forward. Behavioural shifts may also be boosting activity as people reassess their housing needs and preferences as a result of life in lockdown.”

Global oil prices fell at the start of October, with lower demand due to rising Covid-19 cases and also further price pressure following a rise in OPEC output in September. The hope of fresh US economic stimulus helped to stifle the fall in prices. OPEC nations increased production by 160,000 barrels per day during September.

The benchmark 10-year government bond (gilt) yield fell in September, to reach 0.280% at the start of October.

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