Market Update

Overall, it has been a positive week for equity markets despite the prevailing negative news headlines.
As evident from the accompanying table, the UK’s FTSE-100 closed the week over 233 points higher, marking a 4% gain. This notable upward movement was bolstered by the weakening pound. Given that approximately two-thirds of the FTSE-100’s total revenue originates from overseas, a depreciating pound benefits exporters and constituents with substantial overseas earnings.
An exception to this positive trend was observed in the US equity markets. As we previously discussed, it was the tech giants like Apple, Alphabet, and Amazon that pulled the US indices down. However, we interpret this decline not as something sinister, but rather as profit-taking, akin to wiping off the frothy head from a pint of lager, following their recent strong uptrend. These moves underscore the importance of diversification, as equity markets don't always move uniformly. Although such declines can be painful, they are part of the normal ebb and flow of market dynamics. Unfortunately, equity markets are not a one-way street.
The most crucial economic data releases of the week came on Thursday, September 10, 2020. The weekly US jobless claims data showed a consistent number of Americans filing initial claims, and continuing claims, indicating the total number of Americans on unemployment benefits, experienced a slight uptick. The slowing decline in jobless claims underscores our belief that more US stimulus is imminent. The challenge lies in the need for US politicians to set aside their differences and agree on a new fiscal stimulus package to support the struggling American workforce.
However, overshadowing these developments was the European Central Bank’s (ECB) monetary policy meeting. In terms of concrete policy decisions, the ECB meeting unfolded as anticipated – a non-event, leaving both interest rates and the size of its QE program unchanged.
Yet, what captured our attention were the comments from ECB President Christine Lagarde. While we did not anticipate direct action from the ECB to weaken the euro, we expected Lagarde to adopt a tough stance to limit the euro’s strength. Surprisingly, she did not push back against the euro’s strength and instead mentioned there was no need to overreact, leading to a further strengthening of the euro.
Given the lack of urgency displayed by the ECB, our focus now shifts to the upcoming week. Both the Fed, BoE, and BoJ have meetings to discuss monetary policy. Central bank policies have been significant drivers of global equity markets since the 2008/9 global financial crisis, a trend further exacerbated by the ongoing coronavirus outbreak.
Additionally, from the UK, key data releases include employment data (unemployment rate and average earnings), CPI inflation, and retail sales. Meanwhile, from the US, the Empire State Manufacturing Index, University of Michigan Consumer Sentiment Index, and US retail sales figures are anticipated. Stay tuned for our insights in the next round of commentaries.