Risk assets pulled back slightly over the month. Markets continue to take their direction from the path of the pandemic. The global daily case count rose steadily over the month, with Western Europe seeing a notable increase. This has led to fears of a second wave and governments responded by implementing further restrictions. In the short-term these will have a negative impact on GDP, but their longer-term impact will be minimal. We continue to focus on the divergence between cases and deaths. While it is true that deaths are a lagging indicator, and hospitalisations are beginning to rise, they remain a fraction of what they were in March/April.
The economic outlook continues to be mixed. New homes sales have continued to surge both in the US and Europe. Mortgage approvals in the UK are at their highest levels since before the financial crisis. The service sector, however, continues to flounder as a consequence of the ongoing disease restrictions. The divergence in the economy is resulting in vastly contrasting outcomes for different demographics. Many white-collar professionals and skilled tradesmen are benefitting from resilient incomes and much lower outgoings. Low-skilled workers, who make up a large portion of the service economy, are struggling. The uneven economic impact has created what commentators have termed a K-shaped recovery – ‘V’ for some people, ‘L’ for others.
The US election is beginning to loom large on the horizon. The first ‘Presidential’ debate was chaotic and characterised by both candidates exchanging petty insults and talking over each other. Judging a winner in these events is notoriously difficult but early opinion polls suggest Biden came out on top. Markets currently appear relaxed over the election outcome although this may change if a closer race looks likely to develop.
Sterling came under pressure during the month as tensions between the EU and the UK over Brexit increased. The UK government adopted the highly unusual negotiating ploy of suggesting that they might intentionally break international law. Even if such a step was justified by the EU’s intransigence, the sequencing of events and the failure to prepare parliament merely reinforces the perception of a Monty Python-esque Prime Minister and government.