As countries try to formulate plans to change the trajectory of the virus, what is happening in the markets?

  • 21st September 2020

What has happened

Markets in Asia and Europe are selling off this morning as Coronavirus cases in Europe continue to rise, prompting expectations of further restrictions being announced in the coming days.

European virus response

European governments are again stuck between desires for a change in the viral trajectory but also no further national lockdowns. A pickup in hospitalisations within France and Spain, thought to be a few weeks ahead of the UK, has concerned UK policymakers who are wary of the backlash after being seen as ‘behind the curve’ in March. LBC radio reported that London Mayor Sadiq Khan may recommend tightening rules for London as soon as today with further nationwide restrictions possible over the coming days. Further afield, South Korea, will be trialing a tightening of social distancing rules for a fortnight at the end of the month to reduce the level of carriers which is a similar principle to the ‘circuit breaker’ being discussed by UK PM Boris Johnson.

US Supreme Court

Whilst the focus in the US has been the Presidential Race, with the death of Justice Ginsburg, the nomination of a new Justice is taking centre stage. With the Senate being aligned to the Republicans, it is highly likely that Donald Trump’s eventual nominee will have a vote on the floor of the Senate before the election. Should this be successful the US Supreme Court will have a 6 to 3 skew towards conservative/Republican Justices. Given the Supreme Court is used, in part, to set gradations to controversial laws around abortion and gun law any skew will have a lasting impact regardless of who wins the Presidential election in November. Whilst arguably there was a precedent set in 2016 to wait for the new President to choose a Justice, with the White House and Senate aligned in 2020 this is unlikely to be repeated.

What does Brooks Macdonald think

The flash purchasing managers index on Wednesday will be an important temperature check of business sentiment as economic and social restrictions mount in Europe. With restrictions ramping up over the last fortnight it may be too soon to see this feed into the data. Forward looking data such as the PMIs is particularly sensitive to shorter term changes in sentiment, therefore any uncertainty around the future of European economic growth under new restrictions will likely feed through to that dataset in the next month.

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