Global Markets Volatile Despite Positive Signs

Global markets were volatile last week as Coronavirus cases across Europe spiked, forcing countries back into lockdown. The FTSE 100 lost 1.86% following a rise in unemployment, a gloomy International Monetary Fund (IMF) forecast and discouraging Brexit negotiations. On the other hand, the US S&P 500 rose 0.69% as investors shifted their focus to corporate earnings and remained optimistic over prospects for another round of fiscal stimulus.
 
The UK unemployment rate has risen to its highest level in over three years, as the pandemic continues to hit jobs. Growing to 4.5% during the three months to August, compared with 4.1% in the previous quarter, the total number of unemployed now stands in the region of 1.5m. Meanwhile, according to the Office for National Statistics (ONS), redundancies rose to their highest level since 2009, with most of them in sectors such as hospitality, recruitment, and travel. The new data comes as the government begins to impose strict local lockdown rules that will require some businesses to close, potentially resulting in more job losses. A report by the ONS highlighted that employment is down by about half a million since the pandemic began and there are specific groups, such as young people, who seem to be most affected. Of those out of work, around 300,000 are aged 16-24. Most expect unemployment to rise further as the government’s furlough scheme is replaced with the less generous wage support scheme in November, with analysts suggesting that the unemployment rate could surge to 8.5% in the first half of 2021.

Despite UK unemployment rising, the country’s economy grew by as much as 17% in the three months to the end of September, as shoppers splurged during the period as restrictions were eased. However, slower growth is expected to follow, with the last three months of the year possibly seeing growth of only 1% or less. Economic advisers believe the UK economy recovered faster than expected, with consumer spending bouncing back strongly, while housing market activity increased, driven by the stamp duty holiday. ONS figures highlighted that despite growing less than expected, the UK economy continued to recover in August, growing by 2.1%, as the Eat Out to Help Out scheme boosted restaurants.
 
Looking ahead, the IMF has forecasted a less severe recession than what it had previously predicted for both the global and UK economy. For the UK, the IMF now expects the economy to contract by 9.8% this year, rather than the 10.2% decline forecasted in June. However, the contraction predicted would mean that the UK would record the second deepest fall among the G7 group of largest economies, with only Italy predicted to perform worse. For 2021, the British forecast is only a partial recovery of 5.9%, meaning the economy will still be smaller than last year. The estimated global economic contraction is also more moderate than the IMF predicted last quarter, at 4.4%. This will then be followed by a rebound of 5.2% next year.

The slightly less-bleak assessment indicates that downturns in some large developed economies during the second quarter of the year were not as severe as the IMF expected, with countries such as China showing a strong return to growth. Nevertheless, the IMF warned that global recovery is not yet assured as the pandemic continues. The report also highlighted that most economies would suffer lasting damage, with worsening living standards and a rise in both extreme poverty and inequality.

According to new figures from the Ministry of Economy, Trade and Industry, Japan’s industrial production rose 1% in August from July, revising down previously reported growth of 1.7% month-on-month. Nevertheless, growth in industrial output in the country was reported for a third consecutive month, driven by the motor vehicles, steel and electric parts industries. However, compared with the same time last year production was down 14%.