Market Update

Donald Trump significantly influenced market sentiment this week, starting with the chaotic US Presidential debate on Tuesday, September 29, 2020, and culminating in the news of his positive coronavirus test on Friday, October 2, 2020.
In response, betting odds on Joe Biden's victory increased, leading to a knee-jerk reaction in equity markets — a classic "sell first and ask questions later" response, causing a dip in share prices. Despite these developments, as indicated in the accompanying table, most equity markets ended the week on a positive note.
The news about Trump's health has injected an element of uncertainty, but it's crucial to maintain an open mind about the evolving situation. This uncertainty might escalate pressure on both Republicans and Democrats to finalize a new US fiscal stimulus plan. Such a plan is essential to support Americans adversely affected by the pandemic and subsequent lockdowns, potentially bolstering equity markets.
The urgency for this stimulus was underscored by a report released on Thursday, October 1, 2020, revealing a sharp drop in US personal income (-2.7%) due to the expiration of the additional $600 unemployment benefit payment. This reduction in income is expected to translate into a slowdown in consumer spending and GDP data, considering that US consumers account for two-thirds of the country's economy.
Apart from the developments surrounding Trump and the coronavirus, our focus this week included US ISM Manufacturing data, weekly US jobless claims, and September's US non-farm payroll data. These releases collectively indicated that while the US economy continues to recover, the pace is slowing down, transitioning from a rapid "V-shape" recovery observed since April to a more gradual "Nike Swoosh" shape — a robust recovery, albeit slightly slower.
For instance, the ISM reading for September came in at 55.4, indicating the continued expansion of the US economy. However, it was lower than August's reading of 56.0, suggesting that the expansion is no longer accelerating. Although initial and continuing jobless claims decreased, the payroll data showed a smaller-than-expected gain of 661,000 jobs, reducing unemployment to 7.9% from 8.4%. This modest gain indicates that the significant employment improvements seen since May are unlikely to continue without government support, especially as businesses are now facing closures.
Additionally, Eurozone CPI inflation came in at -0.3%, with the core rate dropping to 0.2%, a record low. These figures signal a need for the European Central Bank (ECB) to provide additional monetary stimulus, given their inflation target of close to 2%.
Looking ahead to the coming week, in addition to monitoring Trump's health, attention will be on the minutes from the Fed's last monetary policy meeting, weekly US jobless claims, UK industrial and manufacturing production, UK GDP, Eurozone retail sales, and Chinese PMI data. Additionally, the next Presidential debate between Vice President Mike Pence and Senator Kamala Harris is scheduled for Wednesday, October 7, 2020.