Weekly market recap: double dipping

While the US earnings season is underway, market sentiment hinges on whether we will see a fresh set of Covid-19 lockdowns.

FacebooktwitterlinkedinmailFacebooktwitterlinkedinmail   by Tertius Bonnin, 16th October 2020

“Koe knuffelen”, or cow hugging in English, is a seemingly growing trend in the Netherlands. For those interested, a Dutch farm is now offering up to three hour sessions as a form of therapy. It is thought that the cow’s warmer body temperature and slow heartbeat helps promote positivity and reduce stress in humans.

Investors in UK equities might be in need of some koe knuffelen as the asset class is still down almost -20% year-to-date. Asset class returns are below; while the US earnings season is underway, market sentiment is fixated on whether we will see a fresh set of Covid-19 lockdowns and whether US politicians will agree a stimulus deal.


Figure 1: Asset class total returns in base currency


As we pointed out last week markets have been looking for reasons to be optimistic, such as the prospect of an uptick in fiscal spending in the US. But with a strong bout of politicking between Republicans and Democrats each vying to spin developments to aid their election hopes, the probability of a stimulus package arriving before the start of next year hangs in the balance.

The lack of (and resistance to) a national scale lockdown in the United States at the start of the outbreak has meant that the scale of the pandemic there as represented by Figure 2 is unsurprising. What is surprising, however, is the pace at which European case numbers – even after national lockdowns – appear to be converging with the US despite the implementation of severe lockdowns during the spring and summer months.


Figure 2: Despite the United States not implementing a full national scale lockdown to suppress Covid-19, cases in European states have been accelerating relative to the US Figure 3: The spike in cases in Europe have placed the EMEA region under the spotlight
E5 represents the largest five European states: Germany, United Kingdom, France, Italy and Spain. Active Covid-19 cases calculated as cumulative total cases less cumulative recovered or discharged from hospital less cumulative deaths. Population based on 2019 estimates.

Source: Bloomberg, World Bank, John Hopkins University, World Health Organisation

Source: Bloomberg, John Hopkins University, World Health Organisation





As some commentators put it, the accelerating trend of Covid-19 cases in Europe is likely to precede a new wave of full-scale lockdowns as politicians bet on an emergent vaccine to restore normality. But with new lockdown measures come immeasurable economic costs. The recovery in consumer activity has already been slower than hoped. This is illustrated by the Citymapper Mobility index (Figure 4) which compares the number of trips planned through the route planning app versus a “typical usage period”. While some point to the rebound in restaurant reservations (Figure 5) as a sign that there has been some normality, any further lockdown will be critical to a sector reliant on footfall for revenue.


Figure 4: Data from the transport route planning app Citymapper shows how commuters have not fully resumed pre-Covid levels of travel… Figure 5: …while restaurant booking app OpenTable shows a rebound in activity during summer months following a total collapse in demand
Source: Citymapper Source: OpenTable


There is no doubt that central bankers will be keenly observing the high-frequency data such as the above, and from it they will be making decisions around whether fresh stimulus packages are required to stave off a potential double-dip recession.


STAT OF THE WEEK: 21.5 and 30.9 – the global average age (median) in 1970 and 2020 indicating an aging global population (Our World in Data).

DATA CORRECT AS AT: 16/10/2020

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Contact Tertius

    Tertius Bonnin

    Tertius joined EQ in 2016 and is responsible for covering global and thematic equity investment ideas. He also sits on both the fund selection and strategic asset allocation committees while also supporting the portfolio managers across a range of other responsibilities.

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