Monthly Review: November 2020

Monthly Review: November 2020


United States

The US economy added 638,000 jobs, which was the slowest growth in five months. Nevertheless, it helped to push the unemployment rate below the 7% threshold at 6.9%, with 11.1 million Americans out of work. The monthly PMI report came in better than expected for both manufacturing and services sector components, with the headline composite index reading establishing itself at 57.9, a five-plus year high. In contrast, retail sales rose in October at their slowest pace since the spring as coronavirus cases surged across the country

Euro area

Eurozone business activity fell sharply in November as countries introduced more aggressive measures to counter rising coronavirus cases. The Flash PMI came in at 45.1 from 50 in October, its lowest level since May. At the beginning of the month, retail sales declined by 2% on a monthly basis, coming in worse than market expectations. The two-third of the European Commission’s surveys showed a deterioration, both in terms of sectors and in terms of countries. Growth should be negative in November, but not as much as in February-March this year.

United Kingdom

In a context of lack of progress in Brexit negotiations along with the resignation of Dominic Cummings, Covid-19 impact has continued to be a matter of concern for the UK economy. Consumer spending has softened across a large range of indicators. GDP came in at -9.6 per cent year-over-year and CPI inflation stood at 0.7% in September, well below the central bank’s 2 per cent target. The Government announced an additional £38bn in funding at the Spending Review, with the total size of the Covid-19 fiscal stimulus at £280bn (12.6% GDP). Another £55bn has been committed for 2021.


Switzerland’s unemployment rate remained unchanged at 3.2% in October. Inflation data came at -0.6 per cent yearover-year versus -0.8 per cent in September. KOF Swiss Economic Institute index came in slightly above expectations at 103.5 (101 expected) versus 106.6 in October. Manufacturers seem to gradually become more optimistic while the second coronavirus wave is stronger in the country, with Swiss infection rates surpassing those of its neighbors.

Central banks:

Federal Reserve (next meeting: December 16th)

The Federal Reserve (FED) kept its main rate on hold at its lowest level between 0 per cent and 0.25 per cent and reiterated its willingness to keep it there until the pandemichit recovery reached full employment with higher inflation. As negative interest rates have been ruled out, the minutes of the November Federal Open Market Committee signaled the central bank is ready to make changes in the pace and composition of its asset purchase programme if circumstances shifted, while not being in a hurry to make the changes.

European Central Bank (next meeting: December 10th)

Minutes from the October meeting confirmed policymakers’ concern about a weakening economic outlook, saying that risks to the economy are “clearly titled to the downside”. The European Central Bank has signalled that Eurozone banks will be allowed to pay dividends again from next year if their balance sheets are strong enough. The European Union’s 1.8 trillion-euro ($2 trillion) spending package is being held up by Hungary and Poland over conditions attached to the cash.

Bank of England (next meeting: December 17th)

Mr Bailey echoed Mrs Lagarde’s cautious optimism about coronavirus vaccines and said that vaccines are very encouraging for the UK economy. The BoE expects UK output to recover and regain pre-pandemic levels only in the first half of 2022. The central bank continues to see quantative easing as its main tool for monetary stimulus, adding £150bn to its asset purchase programme on November 5 in a context of resurgence of coronavirus and the ensuing restrictions. The total amount will reach £895bn versus £745bn over the course of 2021. The committee kept rates on hold at 0.10%.

Swiss National Bank (next meeting: December 17th)

On November 4, SNB Chairman Thomas Jordan said the Swiss National Bank’s loose monetary policy stance remained appropriate and negative interest rates are still key. The SNB’s deposit rate has been at an ultra-low -0.75 per cent since 2015 and is part of the strategy of the central bank to stem appreciation pressure on the currency. The SNB bought 90 billion francs ($98 billion) worth of foreign exchange in the first six months of 2020

Market Issues:

  • The US election saga and positive vaccine news-flow were the main drivers of the markets. Joe Biden has been elected as the new US president and cabinet appointments, with Ms Yellen back on the fore front, seems to promise a return to policy-making normality, with closer coordination between fiscal and monetary policy. The first coronavirus vaccines are on track for international deployment within weeks on both sides of the Atlantic. This improves the prospects for a recovery in the global economy.
  • During the month, sovereign rates were rangy and spread compression continued with credit tighter on both rating spectrums. Hybrids, both financials and non-financials, enjoyed decent total return. Primary markets were active with a flurry of new issues flooding the markets.
  • The prospect of further asset purchases by the European Central Bank pushed sovereign bonds yields down across the euro area, especially those with significant extra yield over Germany. Portugal’s 10-year bond yield dropped below zero, temporarily joining the negative yield club. It is worth highlighting that Portugal has seen its credit rating affirmed at BBB by Fitch, outlook stable.
  • Gold declined over the month with the dollar as investors weighed growing optimism over a coronavirus vaccine against surging cases in many parts of the world. The precious metal has risen by more than 18% per cent year to date. With investors’ confidence boosted by vaccine breakthroughs, the US Dollar posted its worst month since July, pushing the US currency to its lowest level since April 2018. Oil continued to rally.
  • In emerging markets, China’s recovery has continued to positively surprise as the latest Manufacturing PMI came in above expectations, being the highest print since September 2017. Nevertheless, a succession of at least partly stateowned companies’ defaults has rattled China’s $15tr bond market and is raising concerns about the country’s financial health.
  • Asia Pacific nations including China, Japan and South Korea signed the world’s largest regional free-trade agreement, representing nearly a third of the world’s population and gross domestic product.
  • The Turkish economy grew 15.6% in the third quarter, driven by household consumption, imports and investments. The trade deficit put continuing pressure on the currency with the Turkish Lira extending its slide in November before recovering following a central bank benchmark interest rate hike

Credit Markets:

  • Margarita Dreyfus, who controlled Louis Dreyfus Company (LDC), has agreed to open the capital of the company to a non-family investor for the first time in the group’s history. LDC will sell an indirect 45% equity stake in the agricultural trader to Abu Dhabi state-owned holding company ADQ. The deal also includes a long-term commercial supply agreement with ADQ for the sale of agri-commodities to the United Arab Emirates (UAE). On November 13rd, S&P assigned a BBB- rating (positive outlook) after stating that the deal with Abu Dhabi Investment firm ADQ will have immediate positive financial implication for LDC. (with such deals designed to help issuers become “greener”)
  • The Europe’s biggest shopping center owner Unibail-Rodamco-Westfield saw its EUR3.5bn capital raising, which would have strengthened its balance sheet, blocked by minority stakeholders led by French billionaire Xavier Niel. As a consequence, the chief executive officer Christophe Cuvillier will exit the company in January.
  • Europcar Mobility Group announced the conclusion of an agreement in principle on a financial restructuring plan, in line with its objectives of achieving a sustainable capital structure and enabling it to carry out its ‘Connect’ programme
  • The world’s largest oil company Saudi Aramco (A1/A) sold eight billion dollars of international bonds in a jumbo deal to bolster its balance sheet and meet its $75bn dividend target as the pandemic hits its profits.
  • Lufthansa (Ba2/BB-) issued a new 5-year benchmark. The environment is complicated for large carriers, but the German company has a local economy growth dynamic, and the government holds 20% in the company and has an option to increase its stake to 25%. It is worth noting that the State has contributed EUR 5.7bn of silent participation in the group via state-backed loans, as did France with Air France.
  • SNAM (Baa2/BBB+/BBB+) offered an 8-year €600m transitional bond. This will be only the third transitional deal this year

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