The stock rout, which saw the S&P 500 fall a further -2.51% and Nasdaq collapse -4.06% took a number of investors by surprise last week. This morning sentiment appears to have improved following reports that the University of Oxford and AstraZeneca Plc have restarted their trials in the UK following the hiccup last week and Oracle has won the TikTok takeover bid which many hope will reduce US-China tensions. Oil also witnessed a torrid week, with Brent falling below the $40pb level (down ~6.6% last week). Meanwhile, the yield on the 10-year was 5bps lower, at 0.67%. Closer to home sterling came under pressure following concerns over a chaotic UK-EU split. Meanwhile the ECB held rates, as was widely expected. Although there was mention of the euro’s recent strength, there was no indication that the central bank would look to target policy towards stabilising the currency. Of note was the ECB’s improved 2020 growth forecast for a 8% contraction, versus -8.7% previously, however, 2021 growth was downgraded to 5%, from 5.2%.
As governments try to find the right balance between managing the spread of Covid and boosting economic activity, we expect sentiment to remain mixed this week. This week’s main features will be the Fed, BoE and BoJ meetings, meanwhile, Brexit talks could continue to grab headlines. The week kicked off with Japanese Chief Cabinet Secretary Yoshide Suga elected as the leader of the ruling Liberal Democratis Party; this came ahead of a separate vote on Wednesday where it was widely expected that Suga would win. Suga, who won the landslide victory, promised to uphold Abe’s “efforts”. Earlier on Sunday he vowed to “create jobs and protect businesses” adding that there is no limit on the amount of bonds a government can issue, to support its economy against the covid pandemic.
The UN General Assembly starts on Tuesday and will be the first time in 75 years that it will not be held in New York, but remotely, with only a few delegates allowed into the building. A busy day on the data front on Wednesday will see the release of China’s IP, fixed assets and retail sales, US empire manufacturing, US industrial production, Germany ZEW and UK unemployment. We will hear from the Fed on Wednesday, where, no change to policy rates is expected, however, after the dovish minutes from the July meeting were released, coupled with the fact that US lawmakers have still not agreed on a fiscal package to further support the economy, all eyes will be on Fed Chair Powell’s news conference and central bank outlook. The OECD will announce its new economic forecasts for the G-20 nations. We will also have the US retail sales print, UK inflation rate and Japan trade releases. On Thursday the BoE is expected to hold pat on rates, however, we may get some future policy guidance, as the economic outlook looks precarious at best, particularly amid the furlough scheme coming to an end next month and the Brexit stalemate. Also of interest on Thursday is Larry Kudlow’s appearance at the Economic Club of New York. A fairly thin day for data will see the UK retail sales print. The week ends with Quadruple witching day on Friday which is expected to witness a pick-up in volatility and trading as the quarterly expiration of futures and options on stocks and indexes in the US expire.