12/10/2020 - Markets: Monthly Commentary September

Markets-Monthly-Commentary-September

Second Corona wave slows down the markets

A second wave of corona hit the international stock markets in September. In addition, the U.S. election campaign caused uncertainty, while in Europe the brexite issue regained its sharpness. On the other hand, the economy continued to recover in Europe, the USA and China.

In September equity markets declined broadly with few exceptions such as Switzerland, Sweden and Japan. The German stock index DAX lost -1.43%, similar to the broad European index Stoxx Europe 600, which fell -1.48%. In the USA the S&P 500 index lost -2.10% and the Hang Seng index (Hong Kong) fell -5.06%. Global equities, as measured by the MSCI World Index, dropped -1.77% - all index data in Euro terms.

The markets were mainly burdened by a second Corona wave that emerged internationally. During the month Germany for example declared more and more countries and regions as risk areas - by the end of September this applied to over 160 non-EU countries and a large part of the EU. In view of the sharp rise in the number of new infections, Corona guidelines were tightened again and speculation about a second lockdown arose not only in Germany. On the other hand various pharmaceutical and biotech companies in China, Germany and the UK reported further progress in vaccine development.

In addition the hot phase of the US presidential election campaign caused uncertainty: Among other things, incumbent Donald Trump launched rumors of the manipulation of the postal vote and refused his promise to hand over the office to his challenger Joe Biden in case of an election defeat, who was about 10% ahead of Trump in the election polls until the end of the month.

In September, against the background of the extensive Corona aid packages, the US also recorded a sharply rising budget deficit: with an annual forecast in height of USD 3,300 billion the ratio of total debt to gross domestic product is expected to rise up to 140%, resulting in the largest US deficit since World War II. In Europe the prospect of a hard Brexit worried investors again as the UK would breach the exit agreement with the EU with a planned Single Market Act and Prime Minister Boris Johnson does not want to negotiate with the EU beyond 15 October.

Faced with these uncertainties yields on ten-year German government bonds fell from -0.42% to -0.52%. But yields on 10-year US Treasuries rose slightly from 0.67% to 0.68%. The price of the fine ounce gold corrected from USD 1,968 to USD 1,900 due to the appreciation of the US dollar. Anyway, the economic trend was positive.

In Germany, the ifo Business Climate Index rose for the fifth consecutive month reaching 93.4 points. In addition, industrial production continued to rise but was still almost 10% below previous year's figure. New orders and exports rose 2.8% and 4.7% year-on-year. Also, the Purchasing Managers' Index for industry improved significantly from 52.2 to 56.6 points. However, the corresponding index for the services sector fell from 52.5 to 49.1 points. The purchasing managers' indices for the euro zone (and in the USA) developed similarly to their German counterparts and the business cycle index of the Centre for European Economic Research (ZEW) continued to rise strongly from 71.5 to 77.4 points, the highest level in 20 years.

Many economic indicators also recovered in the US: industrial production, new orders and retail sales rose slightly compared to previous month and consumer confidence improved significantly from 86.3 to 101.8 points. The unemployment rate fell from 10.2 to 8.4%, although the number of initial weekly applications for unemployment benefits remained stable at 800,000. Also, in China the majority of economic data continued to improve.

 

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