Global Markets Newsletter – September 2020

The third quarter was characterized by negative growth rates and deflationary pressures due to the effects of the Corona virus. Markets have corrected during September and volatility is imminent as US elections approach and the result is ambiguous. Ample liquidity provided by the FED seems to be the main reason for stock markets to be at such high levels as companies invest major parts of their treasuries in stock markets.

GDP in the US for the second quarter has shrank by 31.4%. Chicago PMI was announced at 62.4 from 51.2 reflecting growth. However real estate industry which has been the first-to-grow industry has also decreased its new home sales by 5.1% and building permits by 0.9%. Such a correction does not alarm investors as prices are still expected to rise thanks to the mortgages that banks provide.

In Europe, precautionary measures for the Corona virus have helped diminish its spread causing problems to the economies whose numbers look recessionary. Eurozone´s GDP during the 2nd quarter shrank by 11.8% and retail sales also dropped by 1.3%. Industrial production increased by 4.1% but inflation remains the core issue of the economy as it is almost permanently negative (-0.4%). Business climate was negative at -1.19 but consumer confidence remained stable in low levels though (-13.9%).

In Greece, turmoil form Turkish challenges has not affected markets. On the contrary bonds are at their best during the last decade reaching again 1% for the 10-year government bond showing high credibility in the international bond market. Stock exchange remains at similar low levels (around 630 units) with low volumes. Unemployment started rising (16.7%) as seasonal business close due to the end of the summer season.

The EUR/USD after it reached 1.19 started correcting towards 1.17. US elections will rise its volatility with main direction in favour of the euro.

Our preference remains the american equities versus european stocks where we hold no position. US equities hold 60% of the total portfolio which the technological sector holding 60%. Cash remains crucial as corrections are buying opportunities often.

S&P-500 (year-to-date)
Dax-30 (year-to-date)
EUR/USD  (year-to-date)

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