As we enter the second half of October, with the darker evenings drawing in, minds will be focusing in on the end of the year and the start to another. It leaves us asking questions about where we are, what might happen and who that’s good or bad for. Or in the style of the Sergio Leone classic: what’s the good, the bad and the ugly?
(You have to read this with an Ennio Morricone soundtrack to get full effect.)
The Good: Let’s start with the good news. In countries where the virus has been brought more effectively under control, economic activity is returning relatively quickly to normal. China reported a 4.9% increase in its economy for the third quarter, up from 3.2% the previous quarter, although that was below expectations. This has mainly been driven by an increase in industrial activity and retail sales. The former saw their best level this year, up 6.9% and back to December 2019 levels.
Russia has approved a second COVID vaccine for use and says that a third is close to completion. According to the Wall Street Journal, Sputnik V has already been sold to Brazil, India and Mexico, news that was greeted in financial markets with cautious positivity. Let’s hope this will take off and have a stratospheric effect, providing the world a way forward out of the current viral malaise.
With ballooning national spending and debt, it seems that time has finally been called on austerity economics. The IMF has estimated that government spending has increased $11.7tn, the equivalent of 12% of global GDP. To put this in some historical context, the US National debt hit levels not seen since the Second World War, with its deficit now sitting at $3.13tn. If you are a subscriber to Keynesian economics, then this is definitely good news in your eyes, as we try to ease monetary policy to grow our way out of this extraordinary recession.
The Bad: You can’t have any review of world markets talking about ‘the bad’ without mentioning the virus. The point doesn’t need to be laboured, but of course, increasing cases are only ever going to help the share price of Zoom, rather than any commodity relying on consumer demand.
With rising cases comes the increasingly likelihood that countries will be forced into ever stricter regulations to bring it back under control. Continental Europe is already going back into lockdown, and in the UK both Wales, Northern Ireland and parts of Scotland have ‘circuit breaker’ lockdowns planned.
All this talk of further disruption and lockdowns has economists predicting the potential for a double dip recession, as the world economy takes a second dive on the rise of the second wave. We are already seeing unemployment data rising and it is expected to only get worse in the run up to Christmas.
The Ugly: The US election is not long away, and things couldn’t look tighter, especially in those all-important key swing states. Despite the majority of polls putting Biden ahead, the polls that predicted Trump’s surprise win last time around have come out again for the incumbent President again.
Brexit. You didn’t think you’d get through a piece talking about the end of this year without mentioning the B word did you? Brexit is just another complex problem for stuttering economies to deal with. It could typify market reactions to further Trump-like bilateral agreement disturbances, if he manages to hold on the power.
Commodities-wise we are in a precarious picture for many. Iron ore, despite ignoring many of the other market’s reaction to the virus crash is starting to run out of steam above the $100 mark. It dropped Tuesday to $116, after having been comfortably above the $120 level.
Dry freight, after a quick resurgence, is again struggling to break the $20,000 mark on Capes, and still around $10,000 on Panamaxes. Wet freight continues to drag itself up from recent lows, and Brent is twiddling its thumbs around the $42.50 level. Steel output is at record pace and inventories high, and air freight is looking towards a potential bump from vaccine shipments.
All in all, it’s a Mexican standoff between attempts to bring things back to life and staring into the abyss of further disaster. Even a gunslinging Clint Eastwood is going to have to style themselves out of this one. And don’t forget, he wore a poncho.