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September 12 2020

~Weekly Overview~

Adrian Muñoz

Brexit, ECB and Tech retreat

In this week,

  • US new coronavirus cases continue moving down and the 7-days moving average is now below 40,000. New deaths and hospitalizations are also decreasing. The discussion on how to reopen the economy might begin soon. Meanwhile, the EU and UK new cases are increasing, and nothing suggests this trend is about to stop. There is special focus in the steepness of the curve in France and Spain. Nevertheless, new deaths remain stable.

  • The GBP (British Pound) is underperforming its peers as no-deal Brexit scenario becomes more plausible. The UK government has put on the table the “Internal Market Bill” which seeks power to withdraw certain parts of the Brexit agreement regarding Northern Ireland. The EU considers that bill as unlawful and threatens legal action. It may be just another political movement as support for no-deal scenario is very low in the UK, and the premier likes to be popular. Covid-19 development in the country could lead to a deal.

  • Saudi Aramco will drop oil prices as signs of demand recovery are weaker than expected but will not cut output to support prices. The kingdom fears other countries will take advantage and produce greater amounts, putting the unity of OPEC+ at risk. Oil prices traded at $37/barrel on Friday. Bank of America expects oil demand to recover in 3 years.

  • Tech retreat. Big cap companies such as Amazon, Apple or Facebook plummeted this week after a phenomenal summer rally. Tesla is one of the most affected ones as it saw their shares drop by 20% in a single day after Nikola and General Motors struck a partnership deal. The NASDAQ underperformed the S&P500 consistently. Many analysts reaffirm the existence of a “tech bubble” in which current prices overvalue tech giants.

  • AstraZeneca puts their COVID-19 vaccine study on hold as they try to clarify a suspected adverse reaction in one participant of the study. This is the usual protocol pharmaceutical companies follow. After the initial gap down in pre-market, the markets came back at their previous levels. Competitors such as Moderna and BioNTech rallied.

ECB Meeting

The European Central Bank said on Thursday’s meeting that it will carefully monitor the exchange rate going forward but that it is not something they target. The euro got a boost after Lagarde announced a “strong economic rebound” in the euro area.

“Euro-area domestic demand has recorded a significant recovery from low levels,” she added, while warning that “elevated uncertainty about the economic outlook continues to weigh on consumer spending and business investment.”

Therefore, the central bank revised up its growth forecast for 2020 to -8% from -8.7%. For 2021, the ECB expects GDP to grow by 5% and by 3.2% the year after that.

The interest rate and the PEPP (Pandemic Emergency Purchasing Programme) are kept unchanged despite a surprisingly low inflation reading in August (-0.2%), the lowest since 2001.

As usual, I leave the S&P500 1-week heat map.

Source: Finviz

Have a great weekend.

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