The usual suspects returned to weigh on market sentiment. New Covid cases rose by 640,000 in Europe over the week and fresh restrictions were introduced in countries like France, Germany, the Netherlands, Spain and the UK. Fourth-quarter growth rates are bound to suffer. In an even more worrying development, Germany and Italy, which had previously been unscathed by second-wave contaminations, saw an acceleration in cases.

The US was no exception. New weekly cases hit 350,000, their highest level since July. The IMF has revised its global growth forecasts higher for this year, citing a better-than-expected rebound in post-lockdown activity, but it has also taken persistent and reinforced social distancing measures into account by cutting its 2021 outlook.

Confidence indices had so far proved resilient but Germany’s ZEW and the Empire Manufacturing Index in the US have begun to show signs of weakness.

The Brexit saga also weighed on sentiment as the stand-off between Brussels and London continued. At the end of the October 15 summit, all 27 heads of government said they had seen no real signs of compromise and failed to say whether they were keen to step up talks.

After claiming talks were off, Donald Trump made a surprising offer to increase the stimulus package to over $1.8 trillion in what looked like an attempt to reach a compromise with Nancy Pelosi. However, the offer has little chance of success as Republican senators do not want to go above $500m. Talks are continuing but the impact on households will be felt soon. Unemployment benefits have moved from pandemic aid to more traditional, and therefore less generous, payouts.

European equity markets fell but they remained in positive territory in the US thanks to tech stocks. The risk-off movement helped yields on the German Bund fall by 10bp.

In today’s situation, we feel that European equities are still vulnerable. The increasing pandemic and lower growth will weigh on investor confidence and earnings. In contrast, the US is expected to benefit from a stimulus plan in the coming months.

Japan offers tactical opportunities. The market is lagging but the sanitary situation is good and the economy is sensitive to the global cycle. In other words, we remain neutral on equities overall. We have cut European exposure to neutral and tactically upped exposure to Japan. We remain neutral on US equities. Our fixed income strategy is unchanged. Government bonds are trading towards the bottom of the range. Given concerns on European momentum, we prefer European government bonds to US Treasuries. We also prefer investment grade and high-yield corporate bonds in Europe.


After rising in the first week of October, European markets were hit by a number of headwinds. Doubts resurfaced as to when a coronavirus vaccine might actually be available. Second wave contaminations worsened with several European cities adopting local lockdowns. France introduced a curfew in a number of hotspots including Paris.

And disagreements over fishing rights heightened the risk of the UK leaving the European Union with no agreement.

The week also saw the first third-quarter results and the picture so far is encouraging. LVMH reported only a 7% drop in like-for-like sales when they were expected to fall 11%. Daimler pre-announced that it had had a good quarter with very strong sales in September and Publicis beat the consensus for the third time this year. ASML (semiconductors) also beat expectations thanks to better deliveries of extreme ultraviolet lithography (EUV) machines but the group disappointed markets by remaining cautious for 2021.

Roche, in contrast, reported disappointing sales for three of its anti-cancer molecules although the group reiterated its full-year guidance.

M&A activity remained buoyant. Sweden’s EQT is reportedly interested in the Dutch telecom operator. This comes after the sale of TalkTalk and various capital transactions in recent months involving Altice, Iliad, Masmovil and Sunrise. In the property sector, Xavier Niel and Leon Bressler formed a concert party to thwart Unibail-Rodamco’s plan to increase its capital and change the group’s strategy. In insurance, Axa sold its life assurance, savings, property and casualty, and retirement businesses in several Eastern European countries for around €1bn. The deal should boost Axa’s solvency ratio by 2 points. In industry, the UK’s Liberty Steel is expected to buy ThyssenKrupp’s steel businesses. And in banks, UniCredit is reportedly mulling an IPO for its international businesses according to Italian press sources.


The Dow Jones gained 1.05% and the S&P500 1.06%% while the Nasdaq ended the period 2.56% better.

The first third quarter earnings started to emerge and are likely to be not as bad as in the previous quarter for S&P500 companies. Earnings are expected to fall 20.5% compared to a 31.4% plunge in the second quarter. Investors are focusing more on the extent of the fall rather than the fall itself.

Elsewhere, in an attempt to reach an agreement with the Democrats, Donald Trump said he was willing to increase the new fiscal stimulus package to $1.8 trillion. However, the leader of the Senate’s Republican majority said his troops wanted a less ambitious but more focused plan. Secretary of State Steven Mnuchin warned that it would be difficult to reach an agreement before the November 3 election.

Jobs data were a little disappointing with new weekly jobless claims coming in at 898,000, their highest level since August, and higher than expectations of 825,000.
Banks reported rather upbeat results, especially investment banks. Provisioning was somewhat limited but investors seemed unconvinced. They were disappointed by figures from Citigroup, Wells Fargo and Bank of America but pushed up share prices for JP Morgan and Goldman Sachs.

It was a big week for GAFA companies. Apple presented its new iPhone 12 which comes in 4 models. Amazon launched its “Prime Day” event. Edge cloud platform Fastly reported preliminary sales which fell short of its previous guidance. This was due its largest customer, China’s ByteDance, owner of TikTok, using its services less.

There was mixed news on the sanitary front with two clinical trials for Covid treatments being stopped. Walt Disney unveiled a strategic reorganization of its streaming activities and content.


Stocks were initially stable but gradually weakened amid tough bargaining in the US over additional fiscal measures and accelerated cases of COVID-19 in key European countries. The Nikkei 225 index dipped 0.48% while the TOPIX lost 0.95% for the week. Growth stocks were relatively firm compared to Value stocks.

Insurance, Chemicals, and some stocks in the Electric Appliances sector outperformed.
Major electronic parts manufacturer MURATA MANUFACTURING jumped 5.58%, revisiting its year-to-date high on 5G-related business growth, and TOKYO ELECTRON (semiconductors) gained 3.57%. In Chemicals, sanitary goods producer UNICHARM gained 4.68%, and major cosmetics producers SHISEIDO and KOSE outperformed as their sales recovery accelerated. Their businesses had been severely hit by COVID-19 and the subsequent fall in socializing and foreign demand but are now rallying on expectations for a rapid demand recovery in China.

In addition, Fast Retailing (+3.2%) said it expected record earnings for the period ending August 2021 thanks to China’s rapid business recovery. In contrast, Mining, Non-ferrous Metals and Pharmaceuticals underperformed. EISAI tumbled 6.3% and DAI-ICHI SANKYO lost 4.65%.

Market participants are keeping a close eye on any signs of a business upturn in the third quarter. Manufacturing is expected to recover earlier than non-manufacturing.


The MSCI Emerging Markets Index had dipped by 0.18 as of Thursday’s close. China and Brazil outpaced other regions. China’s recovery continued to gather momentum: exports grew 9.9% YoY in September, vs. an expected 9% and 9.5% previously; imports rose 13.2% (vs. 0.1% and a 2.1% fall). Strong export data were mainly driven by mechanical, electrical, and hi-tech products. Export growth of textile yarn and furniture continued to accelerate. By destination, export growth to the US and ASEAN countries remained solid. In quarterly terms, seasonally adjusted trade levels for both exports and imports have recovered to their respective pre-outbreak levels. Retail sales of passenger cars increased 7.4% YoY to 1.94 million vehicles in September, while wholesale sales of New Energy passenger cars surged 99.6% YoY and by 24.1% MoM. Air passenger traffic reached 47.94 million in September, or 87.5% of last year’s levels.

China cut its FX risk Reserve Ratio to zero from 20% (since August 2018), fueling the renminbi appreciation expectations. New loans were RMB1.9 trillion in September, or higher than expectations, up from RMB1.28 trillion in August. Sequential growth was driven mainly by corporate loans, while household demand contributed moderately. On the corporate front, the US State Department proposed adding Ant Group to its blacklist. Chinese regulatory probes have delayed approval for Ant’s IPO, while the Lufax roadshow continued. New Oriental reported in-line August quarter results with top-line guidance of +10-13% YoY for the next quarter, or better than consensus.

In Korea, Hyundai Motor said it was recalling 77,000 Kona electric vehicles (52,000 overseas, 25,000 domestic) following 4 fires overseas and 9 at home. Early investigations indicated a battery separator issue which put battery supplier LG Chem under heavy pressure over the week.

In Taiwan, TSMC reported better-than-expected third quarter results and guided for a better fourth quarter than initial market estimations thanks to strong demand from 5G smartphones, high-performance PCs and IoT devices. Singapore and Hong Kong reached an in-principle agreement to establish a bilateral air travel bubble.

In India, August industrial production fell 8%, vs -7.8% estimated, or better than the 10.4% pullback in July. September CPI YoY was 7.34%, vs. 6.9% estimated, and higher than August’s 6.69%. In company news, Infosys published top line growth of 2% (above consensus) with a margin of 25.4%, a 270bp improvement. This was the second quarter that the company reported better-than-expected results and market share gains.

Management revised F21 guidance upwards.

Brazil’s general economic activity indicator IBC-Br continued to recover, rising 1.06% MoM in August. Early soft data from confidence indicators pointed to a sequential improvement in September and October.

Mexico’s industrial production posted weak monthly gains in August, indicating a slow and difficult recovery for Latin America’s second-largest economy. It rose 3.3% MoM vs +2.4% estimated and 6.9% in July. Manufacturing fell 9.2% YoY, vs -7.9% estimated and -9% in July.


Disappointing indications on Covid vaccine progress and new restrictions in Europe weighed on sentiment. The mood was not improved by the limited progress on talks over post-Brexit trade relations and the continuing tussle in the US concerning a new stimulus package. The Xover widened by 20bp and Main by 4bp between Monday and Wednesday.

Atlantia had a good week after CDP made an offer for its 88% stake in Autostrade. Press sources said CDP had formed a consortium with investment funds Blackstone and Macquarie which had already been mentioned as possible buyers. The consortium’s offer could amount to €10-11bn. The news represents an easing in relations between Atlantia and the Italian government. Elsewhere, Europcar Mobility Group received bondholder approval to appoint an ad hoc administrator without triggering a default. The financial restructuring can therefore continue.

In third quarter bank results, Goldman Sachs and JP Morgan Chase rose on robust sales and trading activities while Bank of America reported disappointing net interest income.
Elsewhere, Credit Agricole and Banco BPM agreed to share confidential information ahead of a possible tie-up. An alternative solution would be a merger between Cariparma (Credit Agricole Italia) and Banco BPM with Credit Agricole becoming the biggest shareholder.

In a relatively busy week on the primary market, CMA CGM and Cellnex raised €525m and €1bn over 6 and 10 years at 7.5% and 1.75%. Rolls Royce raised €750m, £545m and $1bn at 4.625%, 5.75% et 5.75%. The euro tranche is due 2026, the other two 2027. INWIT raised €750m over 8 years at 1.625%, with some of the proceeds going on refinancing existing debt. Veolia raised €2bn with hybrid perpetuals in two tranches, 2.25% and 2.5%. The first call dates are 2026 and 2029 respectively. The proceeds will be used to fund part of the acquisition of Engie’s 29.9% stake in Suez.  In its second issue this year, La Mondiale raised €500m with a Tier 3 bond at 0.75%. The deal will help the insurance company reinforce solvency at a rather modest price. Demand was strong with the order book more than 6 times oversubscribed. Initially indicated at MS +185bp, the spread was slashed to MS +130bp.

The big event on the new issues market came from cruise company Royal Caribbean which raised $500m due 2023 at 2.875%. Along with others in the sector, the company had already raised $1.15bn in May with a convertible. Management expects operations to resume on December 1st after a shutdown lasting several months because of the pandemic. In Europe, Germany’s Morphosys AG (oncology) raised €352m due 2025 at 0.625%.

In third quarter results, German chemicals company Evonik reported sales of €2.92bn and EBITDA of €519m, or well above analysts’ expectations. The recovery in sales accelerated in September.

Sales at LVMH fell 7% to €1.95bn, or much less than the 12% drop expected. A strong 12% rebound in fashion and leather goods drove the improvement. But a dearth of transcontinental tourism continued to weigh on the selective distribution unit which saw sales tumble 29% due to lower footfall in duty free outlets and department stores.
Elsewhere, Rémy Cointreau finalized its acquisition of a majority stake in the J. de Telmont champagne house. The move marked the group’s return to champagne after selling its Piper-Heidsieck and Charles Heidsieck brands in 2011. In the US, website security specialist Cloudflare launched its new Cloudflare One platform. The company offers cache services to improve performance and protection against cyber-attacks.