Market Pulse - November 2020

Key themes

Covid restrictions return

US election uncertainty weighs on equities

Brexit: the never-ending story

Central banks: poised to do more, if needed

Markets snapshot

Over the month, the MSCI AC World equity index fell -2.5% (-1.8% in euro terms).

Emerging markets rose 1.5% (2.8% in euro terms), supported by a weaker US dollar (which tends to be positive for flows into emerging markets). Hopes that trade tensions would relax in the event of Joe Biden winning the US Presidential election helped too.

The Pacific Basin ex-Japan index gained 0.7% (0.1% in euro terms), benefiting from the ongoing improvement in the Chinese economy.

European equities fell -5.4% (-5.1% in euro terms), as new lockdowns were imposed following a surge in Covid-19 cases.

The UK fell -5.1% (-4.4% in euro terms) as it too reintroduced lockdown measures in response to rising rates of infection. Meanwhile, Brexit-related uncertainty was also a drag.

To date, the third-quarter earnings season has exceeded expectations, with earnings 14% ahead of forecasts in both the US and Japan. Meanwhile, European earnings are 11% ahead. The strong reporting season, however, has been outweighed by growth concerns and election-related uncertainty.

Eurozone >5-year bonds rose 1.3%, as the German 10-year yield fell to -0.63%. Short-term Eurozone growth forecasts were lowered on the back of lockdowns following a second wave of Covid-19.

Indications by the ECB that additional stimulus would be forthcoming in December also contributed to lower yields. Peripheral spreads were flat, with Italian 10-year spreads at 139 basis points (bps), while Spanish spreads ended the month at 76bps.

The euro fell against the US dollar to 1.1647 as the ECB hinted at further policy measures at December’s meeting. Meanwhile, the US dollar benefited from its ‘safe haven’ characteristics.

Commodities fell -3.6% (-2.9% in euro terms) on concerns over the demand outlook against the backdrop of slower growth.

West Texas Intermediate (WTI) oil fell -11.0% due to a deteriorating demand/supply imbalance – inventories rose, with increasing levels of supply.

Despite the ‘risk off’ backdrop, gold fell -1.0%, negatively impacted by the stronger US dollar.

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