Market news 16 November 2020

Chinese data still exceptionally strong, whilst European economic performance already apparently on a downward trajectory even before the latest wave of lockdown measures

•  Chinese exports grew 11.4% year on year in October (September: +9.9% year on year, consensus: +9.2% year on year), beating market expectations for the 8^th consecutive month. Demand was driven by clothing and footwear segments and (iPhone) mobile phone exports, whilst textiles (and face mask sales) moderated. Import growth slowed to +4.7% year on year in October (September: +13.2%, consensus: +8.6%). Export growth took China’s overall trade surplus to $58.4bn in October (from $42.3bn a year ago).

• UK unemployment rose to 4.8% in September (August: 4.5%) even as HM Government enacted the Job Retention Scheme as an extension to furlough. UK GDP rose 1.1% in September (consensus: 1.5%), a material slowdown from the July-August period which nevertheless left Q3 growth at +15.5% qoq. The construction sector has been among the worst hit by the lockdowns, with output -12.5% year on year.  Services output was down -10.0% year on year, industrial production -6.7% and manufacturing -8.8%. Household consumption spiked in Q3 but remains down -12.7% year on year.

• Euro area industrial production declined -0.4% month on month in September. Italy and Ireland drove the majority of the decline, -5.6% and -4.7% respectively, as levels normalised from earlier peaks. German production increased +1.7% over the month, France +1.5% and Spain +0.6%. Analysts are expecting the impact of the second wave of lockdowns to be less severe than the first, as governments have allowed many factories to remain open.

Markets surged on Pfizer vaccine news before consolidating

• Equities leaped in response to the news of an ostensibly successful test of a potential Covid-19 vaccine by Pfizer, with many signs of a pro-growth “Value rotation” in evidence – European equities, led by Euro Bank stocks, outperforming US, with US Tech a notable laggard.

• The initial euphoria rapidly wore off as markets acknowledged that the news is unlikely to signal an imminent removal of growth-constrictive lockdown measures; however, a more optimistic tone had returned to markets by the end of the week.

• The “thrill of the chase” of an effective Covid vaccine, allied to the return to a less antagonistic attitude to diplomacy and global trade anticipated from a Biden White House (reflected in miniature by the sacking of Brexit architect Dominic Cummings from his Downing Street team by British PM Johnson) creates the pre-conditions for a more benign conclusion to the year for financial markets.