Archives of “September 23, 2020” day

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Major European indices close higher but most close near their session lows

  
Analysis, Global Indices

UK FTSE outperforms

The major European indices are closing higher. However, most are closing near their session lows. The one exception is the UK FTSE which has the largest gain and closed near mid range.

The provisional closes are showing:
  • German DAX, +0.5% after trading as high as 1.88%
  • France’s CAC, +0.8% after trading as high as +2.07%
  • UK’s FTSE 100, up 1.3%, after trading as high as 2.49%
  • Spain’s Ibex, +0.4% after trading as high as 1.99%
  • Italy’s FTSE MIB, is up 0.3% after trading as high as 1.78%
Benchmark 10 year yields close mixed with UK yields up 1.8 basis points . Italian yields fell by -1.8 basis points.
European yields are mixedIn other markets as London/European traders head for the exits:
  • spot gold is continuing the tumble lower (following the clues from the higher USD) and trades down $-33.00 or -1.77% at $1866.48.
  • Spot silver is also sharply lower by $1.35 or -5.55% to $23.04
  • WTI crude oil futures are up $0.22 at $40.02

UBS says expects emergency approval of 1-3 vaccines in Q4 2020, to spark rotation in equities

  
  Analysis

UBS’ asset management arm weighs in on the market outlook later in the year

The firm says that they expect some form of emergency approval of between one to three coronavirus vaccines during Q4 2020, adding that they expect “full approval for broad inoculation to begin by the middle of next year”.
Considering such a development, the firm says that they would expect the vaccine approval to help spark a rotation in the equities space, with investors to shift from mega-cap tech firms – as per what we have been seeing – to value/cyclicals instead.
As for equities in general, the firm says that they prefer “pockets outside of the US”, noting that emerging markets, particularly Latin America, are a standout as the respective currencies look rather attractive as well.

UK September flash services PMI 55.1 vs 55.9 expected

  
Analysis, Economy

Latest data released by Markit/CIPS – 23 September 2020

  • Prior 58.8
  • Manufacturing PMI 54.3 vs 54.0 expected
  • Prior 55.2
  • Composite PMI 55.7 vs 56.1 expected
  • Prior 59.1

The recovery in the UK economy begins to lose steam, with household demand seen weakening towards the end of Q3. Business activity continues to grow at a modest pace but the data here mainly reflects the past as the focus stays more on the virus situation now.

The market is looking more towards what restrictions will be introduced by the government to curb the spread of the virus and that is what matters more for the pound at this stage.
Inevitably, if the virus situation worsens, that will also be reflected in business activity data as seen above as well. Markit notes that:

“The UK economy lost some of its bounce in September, as the initial rebound from Covid-19 lockdowns showed signs of fading.

“It was not surprising to see that the slowdown was especially acute in services, where the restaurant sector in particular saw demand fall sharply as the Eat Out to Help Out scheme was withdrawn. Demand for other consumer-facing services also stalled as companies struggled amid new measures introduced to fight rising infection rates and consumers often remained reluctant to spend.

“Encouragingly, robust growth in manufacturing, business services and financial services has offset weakness in consumer-facing sectors, meaning the overall rate of expansion remained comfortably above the survey’s long-run average, which adds to expectations that the third quarter will see a solid rebound in GDP from the collapse seen in the second quarter.

“However, jobs continued to be cut at a fierce rate in September as firms sought to bring costs down amid weak demand, meaning unemployment is likely to soon start rising sharply from the current rate of 4.1%. The indication from the survey that growth momentum is quickly lost when policy support is withdrawn underscores our concern over the path of the labour market once the furlough scheme ends next month, and raises fears that growth could fade further as we head into the winter months, especially as lockdown measures are tightened further.” 

Eurozone September flash services PMI 47.6 vs 50.6 expected

  
  Analysis

Latest data released by Markit – 23 September 2020

  • Prior 50.5
  • Manufacturing PMI 53.7 vs 51.9 expected
  • Prior 51.7
  • Composite PMI 50.1 vs 51.9 expected
  • Prior 51.9

Business activity in the euro area pretty much grinds to a halt in September, with the services sector being the main drag as seen earlier from the French and German readings – owing to the resurgence in virus cases across the region.

The bright spot is that the manufacturing sector remains unperturbed by the situation as a pickup in foreign demand is helping to bolster new orders and output.
When put together, the pace of the recovery has certainly stalled somewhat towards the end of Q3 and this certainly doesn’t bode too well for the outlook going into Q4.
Markit notes that:

“The eurozone’s economic recovery stalled in September, as rising COVID-19 infections led to a renewed downturn of service sector activity across the region.

“A two-speed economy is evident, with factories reporting that production growth was buoyed by rising demand, notably from export markets and the reopening of retail in many countries, but the larger service sector has sunk back into decline as face-to-face consumer businesses in particular have been hit by intensifying virus concerns.

“Job losses also picked up in the service sector as more companies became worried about costs and overheads. Fortunately, factories saw slower staff shedding as pressure on capacity begins to emerge, suggesting the overall rate of job cutting has peaked.

“Encouragement comes from a further improvement in companies’ expectations for the year ahead, but this optimism often rests on infection rates falling, which remains far from guaranteed for the coming months. The main concern at present is therefore whether the weakness of the September data will intensify into the fourth quarter, and result in a slide back into recession after a frustratingly brief rebound in the third quarter.”

Cable extends fall to fresh two-month low as key support levels start to give way

  
Analysis, Forex

GBP/USD falls to 1.2680, its lowest level since 23 July

GBP/USD D1 23-09

Some modest strength in the dollar is helping to push cable lower, but the pound is still unable to get off the floor for the most part and that is also contributing to the decline in the pair to fresh lows since 23 July now.
Of note, the pair is now breaching key support levels from the confluence of the key daily moving averages @ 1.2724-26 as well as the 61.8 retracement level @ 1.2722.
That is leading to the bias in the pair turning more bearish with the drop under 1.2700 now leaving the pair vulnerable to a potential drop towards 1.2500 next.
The trifecta of bearish factors are also continuing to intensify for the pound.

Chinese state media United States actions on TikTok “almost the same as a gangster”

  
  Analysis

China Daily editorial on ‘dirty’ TikTok dealing (via Reuters)

  • China has no reason to approve the “dirty and unfair” deal based on “bullying and extortion” that Oracle Corp and Walmart Inc said they struck with ByteDance
  • “What the United States has done to TikTok is almost the same as a gangster forcing an unreasonable and unfair business deal on a legitimate company”
  • “National security has become the weapon of choice for … Washington when it wants to curb the rise of any companies from foreign countries that are out-performing their U.S. peers,” the editorial said.
  • “China as a big country will not accept blackmail from the U.S. Nor will it hand over control of an outstanding high-tech Chinese company to extortionists”
Is there any doubt on the state of relations between the two superpowers?
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