Choppy week for developed market stocks amid rate decision and Brexit talks

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Choppy week for developed market stocks amid rate decision and Brexit talks
Photo by Frederick Tubiermont on Unsplash

In the previous week, equity market performance in the developed markets stayed mixed, with a bearish tilt, amid policy rate decisions, and worries around EU/UK Brexit trade terms, and fiscal stimulus in the US.

Notably, the major U.S. stock indexes fell for the third successive week, retreating again from the record highs that the S&P 500 and the NASDAQ achieved earlier in the month. The week started off on a strong note amid news that software giant, Oracle, had reached an agreement to operate Chinese-owned TikTok in the U.S.

Choppy week for developed market stocks amid rate decision and Brexit talks
Source: Bloomberg, United Capital Research

However, the Fed’s two-day policy meeting, concluded on Wednesday, seemed to weigh on sentiment amid worries that accommodative monetary policy was becoming less effective in supporting recovery.

Elsewhere, concern about Brexit negotiations and a dramatic rise in new COVID-19 cases pushed European stocks lower. Notably, the Bank of England (BoE) left its policy parameters unchanged during the week and surprised markets with the news that it is actively discussing the possibility of negative rates in the UK.

Choppy week for developed market stocks amid rate decision and Brexit talks
Photo by Frederick Tubiermont

This is predicated on the risks posed by a resurgence in coronavirus cases, the ending of the government’s job support program, and a chaotic end to the Brexit transition period.

Chinese stocks halted two weeks of consecutive losses and ended the prior week in the green territory as economic readings offered more evidence of a  strong recovery unfolding in the country. Specifically, the August-2020 retail sales (+0.5%) showed the first y/y growth since the pandemic began.

Also, Industrial production, seen as the best proxy for China’s GDP, rose by a better-than-expected 5.6% y/y in August-2020, underscoring the strength of China’s economic recovery.

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Brent price recovered to above $40.0/b level later in the week, after sliding below $40/b earlier. Recovery was buoyed by pressure from Saudi Arabia for OPEC+ members to adhere to the group’s production cuts amid faltering demand. Notably, the Joint Ministerial Monitoring Committee of OPEC recommended that the compensation period for countries that had overproduced in the past to be extended till December-2020.

Accordingly, the price of Brent crude closed the week at $43.15/b. This week, we expect
market participants to look to the outcome of the weekly unemployment claims for guidance on the level of economic recovery in the U.S.

UNITED CAPITAL RESEARCH