Economic Outlook – 25 October 2020


  • The September existing home sales report reinforced the notion that the housing market remains a bright spot, even as most sectors of the economy continue to struggle under the weight of the pandemic. After gains moderated in the two months prior, resale activity surged by 9.4% in Sep­tember, blowing expectations out of the water. Sales are now at a new post-Great Recession high and nearly 14.0% above their pre-pandemic level. Details from the report suggested that the purchasing of homes in vacation destinations played a part in boosting overall sales. While the latter are up 21.0% year-on-year, sales in vacation destination counties accelerated over the summer and are up 34.0% year-on-year according to the National Association of Realtors.
  • With low mortgage rates and a still-improving labor mar­ket, resale activity is expected to continue grinding higher, but at a more moderate pace. A sharp acceleration in home price growth is eroding affordability and a record-low supply of housing means that markets will remain tight. Housing in­ventory now sits at just 1.47 million or a record low of 2.7 months at the current sales pace. As a result, the median existing home price has accelerated to a sharp 15.0% year-on-year, the fastest pace since 2005.
  • Initial jobless claims fell by 55k to 787k last week, better than expected, but still slightly higher than at the start of the month. Meanwhile, continuing claims from all programs eased to a still-elevat­ed 23.2 million at the start of the month (data is delayed). Anecdotal evidence from the Beige Book also pointed to a “slight to modest” pace of growth this fall. Coupled with the fact that the virus’ spread is nearing a record high, these elements support the case for added fiscal stimulus.
  • US House Speaker Nancy Pelosi said that Democrats and the White House were moving closer to a coronavirus stimulus deal, but she cautioned that it could take a while for Congress to write and vote on relief legislation. The House speaker said the sides have still not come to a consensus on several issues that include aid to state and local governments, liability protections for businesses and funding for the US Census and election systems. Similarly, Goldman Sachs opined that there is little chance that Congress will pass an economic stimulus bill before the 3 November US elections.
  • The major benchmarks ended mixed, as investors reacted to stimulus negotiations while monitoring third-quarter corporate earnings reports. The technology-heavy Nasdaq Composite Index performed worst, dragged lower by weakness in bellwether Apple, while the S&P MidCap 400 and small-cap Russell 2000 indexes managed modest gains. The technology sector also fared worst within the S&P 500 Index, while communication services shares were strong, helped by gains in internet giants Facebook and Alphabet (parent company of Google), despite news that the latter had become the target of a Justice Department antitrust lawsuit.
  • The earnings reporting season got into full swing during the week, with 91 S&P 500 companies scheduled to report third-quarter results, according to Refinitiv. Netflix shares fell sharply, following news of subscriber gains that came in well below consensus expectations. Other notable movers included social media company Snap, which surged on upside surprises in profits, revenues, and user growth and seemed to provide a tailwind to rival Twitter. Conversely, shares of Intel, one of the Dow Jones Industrial Average’s 30 components, fell over 10.0% in early trading after investors appeared disappointed by results in its data center business. As of the end of the week, analysts polled by FactSet were expecting overall earnings for the S&P 500 to have declined 16.5% in the quarter versus the year before. Of the companies that had reported to date, however, 84.0% had beaten earnings estimates, the highest proportion since FactSet began tracking data in 2008.
  • The Real Clear Politics average of US presidential polls showed former Vice President Joe Biden’s lead over President Donald Trump edging down to 7.9% nationally from 8.9% last week while his lead in the battleground states of Arizona, Florida, Michigan, North Carolina, Pennsylvania and Wisconsin slid to 4.1% from 4.5%. However, Biden’s odds of election held steady at 64.5% while Trump’s odds of reelection edged up to 36.3%, according to the Real Clear Politics average of betting odds. Nearly 50 million people have already voted in advance of Election Day, which represents 35.0% of the total voter turnout in 2016, when only 6 million Americans voted early. The final debate between the major party nominees took place on 22 October. Meanwhile, US national security officials detailed that Russia and Iran obtained information about American voter registrations and are trying to influence public opinion on the election.


  • The eurozone Flash Composite PMI was 49.4 in October compared with 50.4 in the previous month. Meanwhile, the Manufacturing PMI was 54.4 compared with 53.7 the month before, and the Services PMI was 46.2 compared with 48. All indices except services were above expectations. Business activity in the eurozone experienced a stronger decline in October amid the second wave of COVID-19 infections. The two-step economy continues, with manufacturing showing continued growth and services falling further behind, a result of a deep cut into the hospitality sector as national governments reimpose restrictions. Employment remained largely unchanged and estimates of future output sagged across all sectors.
  • The German Flash Composite PMI was 54.5 in October compared with 54.7 in September, the Manufacturing PMI was 58 compared with 56.4, and the Services PMI was 48.9 compared with 50.6; all indices except services were above expectations. A strong manufacturing sector supported growth in the German private sector, even as the services sector fell further. In contrast, employment remained very weak in the manufacturing sector, just as the services sector remained in expansion territory.
  • The French Flash Composite PMI was 47.3 in October compared with 48.5 in September, the Manufacturing PMI was 51 compared with 51.2, and the Services PMI was 46.5 compared with 47.5 a month earlier. All indices except manufacturing were below expectations. New curfews in several cities drove French activity into further contraction, and cemented the divergence between the growing manufacturing and contracting service sectors. Employment indices rose slightly but remained weak across the different sectors.
  • European Central Bank President Christine Lagarde said in an interview with French newspaper Le Monde that the European economic recovery risked “losing momentum” as governments imposed new restrictions to curb the coronavirus pandemic. Earlier, she told an online meeting of the G30 finance ministers, central bankers, and academics that it was “clear that both fiscal support and monetary policy support have to remain in place for as long as necessary and ‘cliff effects’ must be avoided.” She also urged European leaders to step up efforts to approve the EUR 750 billion recovery fund so that money could be distributed early next year.
  • Shares in Europe fell on signs that the economic recovery was stalling amid tighter restrictions to curb surging coronavirus infections. The pan-European STOXX Europe 600 Index ended the week 1.36% lower, and major country indexes also declined: Germany’s DAX Index slipped 2.04%, France’s CAC 40 gave up 0.53%, and Italy’s FTSE MIB dropped 0.54%.


  • British government minister Michael Gove said that there is less than a 50.0% chance of a Brexit deal being reached by year-end. Earlier this month, he assigned a 66.0% probability of a deal. If an agreement is not concluded by January 2021, UK and EU businesses will default to World Trade Organization rules and face higher costs and barriers to trade. The declining probability coincides with new comments from Prime Minister Boris Johnson, who advised British businesses to prepare for a “no” vote. As talks resumed, the European Union’s top Brexit negotiator, Michel Barnier, took a more optimistic tone. He said that a trade deal is within reach if both sides are willing to work constructively and are willing to compromise.
  • The UK’s FTSE 100 Index lost 1.0%, in part reflecting strength in the pound after the resumption of talks with the EU on post-Brexit trade ties. UK stocks tend to fall when the pound rises because the index includes many multinationals with overseas revenues.
  • British retail sales beat expectations in September to cap a record quarter of growth that took total sales volumes further above their pre-pandemic level, but rising COVID cases risk crimping demand going forward. Retail sales volumes expanded by 1.5% in September alone and are 4.7% higher than a year earlier, the largest annual rise since April 2019 and above all forecasts in a Reuters poll of economists. Strong household demand has been the mainstay of Britain’s recovery from the initial shock of the coronavirus lockdown, when output contracted by 20.0%, more than in any other major advanced economy.


  • Data showed that China’s economic recovery continues to gather steam, with third quarter GDP growing 4.9% as compared with a year ago. That brings growth for the first three quarters of the year to 0.7% from a year ago. Slower recovery in Chinese consumption remained a drag, with retail sales contracting 7.2% in the first nine months of 2020 from a year ago. However, retail sales rose 3.3% in September and increased 0.9% in the third quarter. Industrial production rose 6.9% in September from a year ago, bringing total growth for the first nine months of the year to 1.2%. The International Monetary Fund expects China will be the only major world economy to grow this year, at a rate of 1.9%.
  • In company news, Chinese e-commerce giant Alibaba began promotions for “Singles Day,” the world’s largest consumer shopping event it holds in November each year. This year’s event will be extended by three days to meet an expected coronavirus-driven surge in demand. Alibaba said it expects about 800 million consumers to participate in this year’s Singles Day, which despite drawing huge publicity is not considered economically significant given that it cannibalizes consumer spending from adjacent time periods. Last year, Alibaba’s gross merchandise value, a gauge of sales across the company’s various e-commerce platforms, totaled RMB 268.4 billion, or roughly USD 38.3 billion. By comparison, 2019 “Black Friday” online sales totaled USD 7.4 billion.
  • Chinese stocks retreated, with the large-cap CSI 300 Index and benchmark Shanghai Composite Index shedding 1.5% and 1.8%, respectively. The yield on China’s 10-year sovereign bond decreased, slowing a steady advance dating back to July. On the monetary policy front, the People’s Bank of China Governor Yi Gang said that China’s key debt ratios could moderate in the coming months as economic growth picks up. Yi also stated that the central bank would pursue a balanced approach to supporting China’s economy, saying that monetary policy “needs to guard the gates of money supply and properly smooth out fluctuations” in the country’s macro leverage ratio. The renminbi currency continued its strengthening against the US dollar aided by strong inflows into China’s domestic bond market, whose relatively high yields have attracted foreign investors.

Sources: T. Rowe Price, Reuters, MFS Investment Management, TD Economics, M Cassar Derjavets.