In our latest monthly investment update for November 2020, we take a look at how the global investment markets, economy and commodities are performing.
The FTSE 100 index of leading UK company shares closed at the end of October at 5,577.27 points, falling by 288.83 points or 4.92% during the month.
It was the worst month for the index since March, with investor sentiment turning negative after a surge in Covid-19 cases in Europe and the US, leading to renewed lockdown measures.
In the final week of October, global equity markets entered negative territory as coronavirus cases spiked, prompting a raft of local, national and international restrictions.
France, the second-largest economy in the EU, introduced a second national lockdown on Friday, which is initially due to last until 1st December. The lockdown measures in France include the closure of bars and restaurants, with a ban on domestic travel and public gatherings.
Tighter lockdown restrictions were introduced last week in Germany and Switzerland, with England following suit on Saturday, introducing a second national lockdown which is scheduled to last until 2nd December.
Accompanying news of the new lockdown in England was an extension of the ‘furlough’ scheme, paying employees 80% of their usual earnings. Businesses with premises forced to close will also receive a cash grant of up to £3,000 a month, depending on their rateable value.
The mortgage payment holiday scheme in the UK will be extended by six months.
Shortly after the new lockdown measures were announced, government ministers floated the idea of the restrictions lasting longer than the initial 2nd December deadline.
Chancellor Rishi Sunak said the government will “seek to exit” the lockdown measures into the original tiered local lockdown approach, warning that the “peak of mortality is higher” than seen during the first wave and that the “NHS would be overwhelmed” without these restrictions put in place.
Ahead of the new lockdown announcement, the Coronavirus Jobs Retention Scheme was scheduled to end, to be replaced in November by a new Job Support Scheme, on less favourable terms for employers and employees.
A new survey of manufacturing activity shows the sector was already “losing momentum”, with accelerating job losses, before the latest lockdown measures came into force in England.
Local lockdown restrictions and falling consumer demand were behind the decline in output last month, with widespread job cuts for consumer goods firms. Employment levels in the manufacturing sector fell for a ninth consecutive month, with spare capacity increasing in the sector.
As we start November, European markets are braced for a volatile week ahead. Added to concerns about national lockdowns across Europe is the outcome of the US Presidential election, along with monetary policy decisions from the Bank of England and US Federal Reserve.
Republican Donald Trump is trailing Democrat Joe Biden in polls across the US, but the margin of certainty does not guarantee a Biden victory.
The Bank of England and US Federal Reserve are both scheduled to meet on Thursday, with widespread expectations of further quantitative easing.
In the UK, despite talk of negative interest rates, the most likely outcome from the November Monetary Policy Committee meeting is an extension to the programme of asset purchases, perhaps by as much as £100bn. The Bank of England is also expected to downgrade its economic forecasts for the fourth quarter.
With the UK economy coming under growing pressure, business borrowing in 2020 is expected to rise fivefold. The EY ITEM Club expects net borrowing from banks to rise by 11% this year, to reach £493 billion. Government-backed coronavirus loans are driving this expansion in business debt.
Also driving negative investor sentiment as we enter the final two months of the year is unresolved Brexit trade negotiations. The 31st December transition period end is rapidly approaching, with little real progress between UK and EU negotiators.
Looking at the wider global economy, oil futures fell sharply on Monday morning, with lower demand for oil expected against the backdrop of a wave of second lockdowns across Europe. The benchmark Brent Crude fell by 2% on Monday morning to $37.16 a barrel.
In the UK, the latest official price inflation figures jumped in the year to September, pushed higher following the end of the government’s Eat Out to Help Out Scheme. The Consumer Prices Index (CPI) measure of price inflation rose from 0.2% to 0.5%, with catering services and aviation inflation both rising.
House price inflation rose in October at its fastest annual rate in more than five years, with buyers rushing to beat the end of the stamp duty holiday next year. According to Nationwide, house prices rose by 5.8% in the last year, resulting in an average price of £227,826.
Robert Gardner, chief economist at Nationwide, said: “Activity is likely to slow in the coming quarters, perhaps sharply, if the labour market weakens as most analysts expect, especially once the stamp duty holiday expires at the end of March.”
The benchmark 10-year government bond (gilt) yield fell again in October, to reach 0.230% at the start of November, as investors continue their flight to safety.
