Market news 19 October 2020

China data remains robust

• Chinese Total Social Financing (TSF, the broadest measure of credit provision in the economy), increased 13.5% year on year in September, the seventh consecutive monthly advance, driven by a tripling of local government bond issuance versus a year ago and a rise in long-term household loans (primarily mortgages) to a 20-month high. 

• Chinese exports rose +9.9% year on year in September, roughly in line with expectations, whilst imports leaped +13.2%, well ahead of expectations on surging domestic demand. Hence, the trade surplus came in at a smaller-than-expected US$37bn. 

US data also upbeat

• September US retail sales jumped 1.4% on the control group measure (ex autos, gasoline and building materials), well ahead of expectations. The NFIB small business survey jumped to 104.0, the highest reading since February. 

• The bellwether Philly Fed survey also materially exceeded expectations at 32.3 in October (14.8 expected, 15.0 prior). Industrial production, however, disappointed, contracting -0.6% in September vs expectation for a +0.5% increase. 

UK unemployment rises; sovereign rating downgraded

• The UK unemployment rate rose 0.2pp to 4.5% in the three months to August although the rise was in part due to a methodological change. Unemployment is likely to rise significantly in the coming months.

• Moody’s downgraded the UK’s sovereign rating to Aa3, estimating that the country has seen the sharpest peak-to-trough contraction in the entire G20. The ratings agency also commented that “the quality of the UK’s legislative and executive institutions has diminished in recent years”. 

Equities choppy; the previous week’s rally loses momentum

• Global equities moved sideways as expectations for a fiscal stimulus package in the US prior to the General Election receded and polls in some of the swing states started to narrow. European equities notably underperformed as new Covid-19 cases accelerated.