Economic Outlook – 27 September 2020


  • Existing home sales rose by 2.4% in August to 6.0 million units (annualized), which marked another post-Great Recession record. The improvement spanned both single and multi-family segments and all four Census regions, though gains in the latter were concentrated in Northeast (13.8%). Meanwhile, in part due to a low inven­tory backdrop, home price growth accelerated sharply into double digit territory, with the median existing home price up over 11.0% in August relative to a year ago. New single-family home sales were even more impressive, rising 4.8% even after hitting the highest level in nearly 14 years in July. The level of new home sales has only been higher in the frenzied housing market of the mid-2000s that preceded the Great Recession.
  • The jobs recovery is already showing signs of fatigue. After a relatively steady drop in the months prior, initial job­less claims have remained near the 900k mark since the end of August. Last week they rose modestly to 870k, extending the mostly-flat trend. On a more positive note, continuing claims decreased by 167k to a still-elevated 12.6 million for the week ended 12 September (this data is delayed by a week). Meanwhile, the number of people collecting unem­ployment benefits from ‘all programs’ edged lower, but re­mained elevated at 26 million at the start of the month.
  • Without additional income supports, spending could take a tumble as the high numbers of unemployed are forced to reduce consumption. With the Fed clearing up its stance (and limitations) on monetary policy last week, the ball is clearly in Congress’ hands. On this front, it was announced that Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi have agreed to restart stimulus talks, in what marks a small positive step in the right direction.
  • In congressional testimony, US Federal Reserve Chair Jerome Powell said that the central bank “remained committed to using our tools to do what we can, for as long as it takes, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy.”  While noting a continued improvement in economic conditions, Powell acknowledged that the path ahead continues to be highly uncertain. The Fed chair, along with several members of the Federal Open Market Committee, said that the economy will recover more quickly with the aid of additional fiscal stimulus.
  • The manufacturing sector appeared to remain in good shape as companies restocked inventories depleted in the wake of the pandemic, but IHS Markit’s gauge of service sector activity declined for the first time since April, if only slightly (from 55.0 to 54.6, still indicating expansion). Headline durable goods orders in August missed on the downside, but core capital goods orders (which exclude defense and aircraft orders) rose a solid 1.8%, while July’s increase was revised higher, to 2.5%. Housing also remained a bright spot, with new home sales in August reaching their best level since September 2006.
  • The Real Clear Politics average of US presidential polls showed former Vice President Joe Biden’s lead over President Donald Trump ticking up to 6.6% nationally from 5.9% last week while his lead in the in the battleground states of Arizona, Florida, Michigan, North Carolina, Pennsylvania and Wisconsin edged down to 3.6% from 3.9%. Biden’s odds of election were little changed at 53.6% against Trump’s odds of reelection at 45.6%, according to the Real Clear Politics average of betting odds. The first debate between the two candidates is scheduled for 29 September in Cleveland, Ohio and will center around six topics: the Biden and Trump records, the Supreme Court, COVID-19, race and violence in US cities and the integrity of the election.
  • The large-cap benchmarks endured their fourth consecutive week of declines, marking the longest such stretch in over a year and sending the S&P 500 Index briefly into correction territory, or down more than 10.0% from its recent peak. Consumer discretionary shares outperformed, helped by strength in Nike following its report of a rebound in summer sales. Technology stocks also proved resilient, helping the tech-heavy Nasdaq Composite Index record a gain for the week. Energy stocks suffered the biggest declines in the S&P 500 in response to falling oil and natural gas prices, while declines in regional bank stocks due to concerns over depressed lending margins put pressure on financials shares.


  • The eurozone Flash Composite PMI was 50.1 in September compared to 51.9 in the previous month. Meanwhile, the Manufacturing PMI was 53.7 compared to 51.7 the month before, and the Services PMI was 47.6 compared to 50.5. All indices except manufacturing were below expectations. The euro area’s business activity in September slipped back into neutral, with the composite index flattered by a strong and largely German-driven rise in manufacturing output. The weak point remained the services sector, hampered by concerns over renewed COVID-19 cases and the possibility that social distancing remains an issue, even with many restrictions lifted. Job losses continued this month.
  • The German Flash Composite PMI was 53.7 in September compared to 54.4 in August, the Manufacturing PMI was 56.6 compared to 52.2, and the Services PMI was 49.1 compared to 52.5; all indices except manufacturing were below expectations. Business activity continued to expand in September, albeit at a lower pace, driven by a sharp rise in manufacturing. Meanwhile, services slipped back into contraction territory and employment workforce numbers continued to fall.
  • The French Flash Composite PMI was 48.5 in September compared to 57.6 in August, the Manufacturing PMI was 50.9 compared to 49.8, and the Services PMI was 47.5 compared to 51.5 a month earlier. All indices were significantly below expectations. Private business activity in France fell for the first time in four months, related to news of a resurgence in cases of COVID-19. Manufacturing saw a slightly higher pace of activity than last month, whereas the services sector experienced a significant reduction in activity. Employment deteriorated further as well.
  • In Italy’s regional elections, the populist right-wing League party of Matteo Salvini failed for a second time this year to break through in traditional left-wing areas, further reducing Salvini’s chances of unseating the ruling coalition while improving the prospects of Prime Minister Giuseppe Conte’s center-left Democratic Party. The yield on the 10-year Italian sovereign bond declined after the election, reflecting the reduced political uncertainty.
  • Shares in Europe tumbled as a surge in coronavirus infections prompted some countries to implement stricter containment measures. Signs that the economic recovery may be stalling also weighed on stocks. In local currency terms, the pan-European STOXX Europe 600 Index ended 3.60% lower, while Germany’s DAX Index dropped 4.93%, France’s CAC 40 fell 4.99%, and Italy’s FTSE MIB slid 4.23%.


  • The flash August PMI fell from 59.1 in August to 55.7 in September (consensus: 56.3), suggesting the recovery has started to lose steam. These numbers mirror those PMIs seen across European Economies (the flash services PMI in the eurozone fell from 50.5 to 47.6) and has been the case throughout this crisis. The UK is following the wider European trend with a delay of two to three weeks. With further restrictions being imposed last night (not reflected in these numbers) on business opening hours and encouraging people to work from home.
  • As the number of COVID-19 cases climbed, Chancellor of the Exchequer Rishi Sunak announced further support for jobs, businesses, and the hospitality and tourism sectors. The new jobs support initiative is a much smaller extension of the GBP 39 billion program that is slated to end October. The government’s subsidy will fall to 22.0% from 60.0%, apply only to those who are working at least a third of their normal hours, and last six months.
  • Bank of England Governor Andrew Bailey said at an online talk hosted by the British Chambers of Commerce that the central bank will do everything possible to support the economy, after noting that the resurgence of the coronavirus “does reinforce the downside risk we see in our [economic] forecast.” He confirmed that policymakers had “looked hard” at the central bank’s capacity to cut interest rates and at the potential for negative rates. However, he said that these considerations did not imply that a move to negative rates was imminent.
  • British consumer confidence ticked up in September to its highest level since the coronavirus lockdown started in March, but it remains well below its pre-pandemic levels, a survey showed on Friday. The GfK Consumer Confidence Barometer rose unexpectedly to -25 in September from -27 in August. A Reuters poll of economists had pointed to an unchanged reading. The survey was conducted in the first half of the month – before Tuesday’s announcement of new social restrictions to curb a resurgence of the COVID-19 pandemic across the United Kingdom.
  • British car production fell by an annual 45.0% in August as the sector continues to suffer due to the COVID-19 pandemic pushing down demand. British factories churned out 51k cars last month, leaving output in the first eight months of the year down by nearly 350k compared to the same period in 2019, the Society of Motor Manufacturers and Traders (SMMT) said “companies are bracing for a second wave with tighter social and business restrictions making the industry’s attempts to restart even more challenging”.


  • FTSE Russell said it will include Chinese government bonds (CGBs) in its widely used World Government Bond Index (WGBI) starting in October 2021, subject to confirmation at the index provider’s semiannual review in March. The widely expected decision by FTSE marks China’s third addition to global government bond indexes in recent years, following similar moves by Bloomberg Barclays and JP Morgan. Index inclusion is expected to take 12 months and conclude in September 2022. Afterward, CGBs are expected to constitute about 5.7% of the index. 
  • Inclusion in the WGBI is expected to give Beijing strong incentive to continue improving market access to foreign investors. Analysts said the move could attract as much as USD 150 billion of foreign inflows into China’s domestic government bond market and help support the yuan in the medium term. The WGBI is tracked by more passive investors than the Bloomberg Barclays Global Aggregate Index (approximately 80.0% passive versus 20.0% active, according to HSBC Global Research). Last week, China’s central bank gave further details of its proposal to simplify the bond account opening process and allow greater foreign exchange trading flexibility. The new measures will likely be introduced after a public consultation period ends on 22 October.
  • Stocks in China fell in tandem with the global correction, with the benchmark Shanghai Composite Index and CSI 300 Index dropping 3.6% and 3.5%, respectively, in their biggest weekly loss since mid-July. In fixed income markets, the yield on China’s sovereign 10-year bond shed three basis points to 3.13%. China’s central bank left its loan prime rate, the reference rate for new bank loans, on hold for the fifth straight month, as expected. The yuan weakened to CNY 6.82 per US dollar in a risk-off week characterized by broad dollar strength.

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