Top financial market stories of the week
Monday 19th October 2020-Friday 23rd October 2020
1. Chinese economy expands 4.9% in Q3 — Monday
Chinese officials said Monday that gross domestic product expanded by 4.9% in the third quarter from a year earlier, putting China’s economy back toward its pre-coronavirus trajectory half a year after the pandemic damaged its economy. The 4.9% growth figure for the third quarter fell short of expectations but brings the trajectory closer in line with forecasts made at the beginning of the year for 2020 growth of between 5.5% and 6%. The third-quarter expansion builds on the second quarter’s 3.2% growth, which follows a historic contraction of 6.8% in the first three months of the year.
This recovery has been helped by an industrial boom as figures show industrial production in China leapt 6.9% in September — its highest level this year and the same rate as in December before the coronavirus outbreak. In April, authorities sought to get factories revved up again. With production ramping up, China was able to increase its share of global exports, shipping medical equipment like face masks and sterilizer in addition to work-from-home computer equipment to customers around the world as other exporting nations suffered through their own lockdowns. With industrial production now growing at a faster rate than in much of 2019, the country’s overall rate of growth is moving towards the 6% level China recorded in the third quarter last year, before the pandemic.
2. Stock exchanges prepare themselves for Brexit — Monday
According to the Financial Times, London’s biggest share trading venues are preparing to switch on their Brexit contingency plans, reflecting fears that the UK’s departure from EU frameworks will lead to a radical reshuffle of where investors can buy and sell European stocks. For example, Aquis Exchange will add stocks to its French platform, previously available only in London, on November 11, and the London Stock Exchange Group has planned to open the Amsterdam base of its Turquoise platform at the end of next month. As the biggest share-trading centre in Europe, London handles as much as 30% of the 40 billion euro ($46.9 billion) daily market.
The UK government is urging companies to step up preparations for the country’s leaving the EU trading bloc without a new deal in place in eight weeks. The Treasury will write to 200,000 traders about new customs and tax rules, according to Bloomberg. Trade talks between Britain and the EU appear to be close to failure, and Boris Johnson has said there is no point in continuing them unless the EU changes its position. Although traders remain hopeful that an accord can be reached as part of a post-Brexit free-trade agreement being negotiated. For this to happen, the EU needs to recognize the UK and its exchanges as operating under equivalent rules.
3. Bitcoin hits 2020 high after PayPal announcement — Wednesday
The price of bitcoin hit a record high for 2020 on Wednesday, after PayPal announced plans to integrate cryptocurrency into its online payment platform. Bitcoin’s price rose by more than 5% following the news, taking its total gains since last week above $1,000. It is currently trading above $12,400. PayPal said customers will be able to pay using bitcoin and other cryptocurrencies at the 26 million merchants on its network from next year. However, merchants will not receive virtual coin payments, with cryptocurrency payments being settled using fiat currencies, such as the US dollar, the company said.
President and chief executive Dan Schulman told Reuters in an interview: “PayPal hopes the service will encourage global use of virtual coins and prepare its network for new digital currencies that may be developed by central banks and corporations. The PayPal announcement came two weeks after payment giant Square announced it was adding $50 million worth of Bitcoin to its balance sheet as a long-term investment, and two months after another publicly traded company, MicroStrategy, made a $250 million Bitcoin purchase.
4. UK government debt reaches highest level in 60 years — Wednesday
UK government borrowing hit a record high for the sixth month in a row in September, taking public debt to its highest level in 60 years. Figures from the Office for National Statistics (ONS) show Britain’s debt pile now stands at almost £2.1 trillion ($2.7tn), dwarfing the entire economy at 103.5% the size of GDP. In just the month of September, the country’s indebtedness reached £36.1 billion pounds, above forecasts and the highest recorded monthly figure.
The increase in British debt is a consequence of the measures adopted by the Government to face the serious economic impact that the coronavirus pandemic is having in almost all economic sectors. Tax receipts were 13.4% lower than a year earlier, while the furlough and self-employed job support schemes cost £5.9 billion last month. Although, government borrowing costs remain extremely cheap. The Bank of England has ramped up it’s purchasing of government debt through newly created money during the crisis, holding down borrowing costs.
5. Germany faces more than 1 million job losses — Thursday
A survey by Germany’s KfW development bank says that more than a million jobs are under threat in the country’s small and medium-sized companies this year due to the COVID-19 pandemic. Germany’s SMEs, known as the “Mittelstand” are the backbone of the economy. Their share of overall economic activity is 71.3%, according to KfW. These companies are now facing the brunt of the economic fallout. The survey said that about 2 million companies are expecting falling sales for the rest of the year. The decline in sales will likely lead to job losses, according to the survey: SMEs said job losses could amount to up to 3.3% by the end of the year, meaning a total of 1.1 million jobs would be lost by the end of the year.
6. Italian bond sale sees stellar demand — Thursday
Italy’s sale of 30-year bonds drew strong demand on Thursday, locking in near-record-low borrowing costs. The Italian Treasury received more than €90bn of orders from investors for the €8bn of debt on offer. The debt priced at a yield of 1.76 per cent, the second-lowest ever for 30-year Italian bonds. Italian yields rose to a two-week high on the same day after the launch. Italian 10-year BTP yield rose 1.3 basis points to 0.806%, a two-week high. Yields across older maturities rose by around 2 basis points as well, with the 30-year yield also inching to a two-week high of 1.708%.
Lyn Graham-Taylor, a fixed income rates strategist at Rabobank, said the fact that asset managers find it hard to obtain large amounts of Italian debt on the secondary market pushes them to be more aggressive when countries tap the bond markets directly. She also said that another reason for the sale being so oversubscribed was that money managers know they will not get the amount asked for and so they always ask for more to make sure they get what they wanted in the first place.
7. UK consumer sentiment falls by most since start of pandemic — Friday
British consumer sentiment fell this month by the most since a slump at the start of the coronavirus pandemic as lockdown restrictions tightened across much of the country. The GfK Consumer Confidence Index tumbled to -31 in October, its lowest level since late May and down sharply from a nine-month high of -25 in September, as well as being below all forecasts in a Reuters poll of economists. The index showed an especially large 12-point decline in households’ outlook for the economy over the next 12 months. GfK director Joe Staton said, “There’s a worrying threat of a double-dip in consumer confidence as concerns for our personal financial situation and even deeper fears over the state of the UK economy drag the index down.”
Although retail sales in July and August were above pre-pandemic levels, economists worry that a big part of the rebound has been driven by pent-up demand which is likely to fade, especially if unemployment climbs steeply in the final months of the year like the BoE forecast in August. Britain’s main furlough programme expires at the end of this month, which could damage sentiment further.
Where did stocks finish this week?
- The FTSE 100 closed at 5,860.28 declining 1% this week.
- The FTSE 250 closed at 18,109.57, gaining 1.60% this week.
- The Nasdaq closed at 11,548.28, declining by 1.05% this week.
- The S&P 500 closed at 3,465.39, declining by 0.53% this week.
- Japan’s Nikkei 225 closed at 23,516.59, gaining 0.45% this week.
- The Shanghai Composite closed at 3,278.00 declining by 1.75% this week.