Covid Lockdown Restrictions, Mixed China Data and Vaccine Optimism

Signs that China’s economic recovery is gaining momentum, plus covid vaccine optimism, coupled with US fiscal stimulus hopes are just about offsetting fears of rising covid cases in Europe and tighter lockdown restrictions.

Charts (4)

Whilst the FTSE looks set to lag behind its peers EU bourses are pointing to a mildly stronger start following an upbeat session in Asia with stocks being propelled up towards recent 2.5 year high. Signs that China’s economic recovery is gaining momentum, plus covid vaccine optimism, coupled with US fiscal stimulus hopes are just about offsetting fears of rising covid cases in Europe and tighter lockdown restrictions.

China’a GD revealed growth of 4.9% in the third quarter, just slightly missing expectations of 5.2% growth, although still faster than 3.2% economic growth achieved in Q2. Despite the disappointing print, there were some encouraging signs with an upturn in consumption and continued strength in the factory sector. The monthly indicators actually beat forecasts suggesting that the recovery is picking up momentum boding well for the coming quarter and hopes that China will be able to help haul the globally economy back onto its feet.

Vaccine optimism
Hopes of a vaccine are lifting spirits at the start of the week. Pfizer announced on Friday that a vaccine could be ready before the end of the year. Given that a vaccine is the surest and quickest way to return economic growth to pre-covid levels any hint of vaccine hope often boosts risk sentiment, lifting demand for riskier assets such as stocks. However, with recent disappointment from Johnson & Johnson & Eli Lilly the market is aware that the road to a vaccine is unlikely to be a smooth one.

Fiscal stimulus
Stateside the subject of US fiscal stimulus “will they won’t they” seesaw continues. The latest comments from House Speaker Nancy Pelosi indicates that the Democrats and Republicans could still reach a deal before the US elections. The fact that Trump is also pushing for a deal over $2 trillion, certainly closer to the Democrats $2.2 trillion package demand is also helpful. Although he will still need to convince hawks among the Republicans.

Lockdown restrictions to cap upside
Concerns over rising covid cases are capping gains. The UK recorded over 16,000 new daily infections as large parts of the country experienced tighter lockdown restrictions and as data revealed that the UK experienced a record number of shop closures during the first half of 2020. With Britain facing increasingly stricter lockdown restrictions heading into winter, in addition to a less generous jobs support package from the government the outlook remains very bleak.

House builders in focus as house prices surge
House builders will once again be in focus as UK house prices continue to surge through October. Another surge in demand for housing pushed up prices by the most in four years. Buyers are proving to be prepared to pay a premium for more space after their lockdown experience. The housing market is clearly in an extraordinary place right now, but with clouds gathering on the horizon as unemployment is set to surge, the strength in the housing market is unlikely to last into next year.

FTSE Chart

More from FTSE 100

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.