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Global stocks fell amid declines in technology shares

US Treasuries

Key Takeaways

  • The US unemployment rate fell more than expected in August
  • In the coming week, the European Central Bank’s policy meeting will be in focus following recent weak inflation data
  • Global stocks fell amid declines in technology shares
  • Government bonds found support from reduced risk appetite and weak eurozone inflation data
  • Oil prices fell on fresh oversupply concerns

Last week in detail

The US unemployment rate fell more than expected in August

  • In the US, nonfarm payrolls grew by 1,371,000 in August, outpacing an expected 1,350,000. The unemployment rate also surprised positively (+8.4% vs. +9.8% expected). However, private-sector job growth disappointed expectations (1,027,000 vs. 1,325,000 expected) as did the headline labour force participation rate (61.7% vs. 61.8%). Meanwhile, the ISM Services PMI declined 1.2 points to 56.9 in August, modestly below an expected 57.0. Survey respondents were generally optimistic but noted a levelling out in retail sales growth. There was also more frequent mention of US-China trade tensions and tariff concerns. Finally, the ISM Manufacturing PMI increased to 56.0 in August, compared to an anticipated 54.8, with the new orders sub-index jumping 6.1 points to a 16-year high of 67.6. Respondents remained broadly optimistic on the outlook, though to a lesser degree versus the prior month. 

Eurozone core inflation fell to its lowest rate since the formation of the bloc

  • In Europe, eurozone CPI inflation fell 0.6 ppts to -0.2% yoy in August, a sharper decline than expected. Core inflation, which excludes volatile items, declined by 0.8 ppts to 0.4%, the lowest level on record. Services inflation also slowed to a record-low 0.7% yoy from 0.9% yoy, suggesting weak demand is weighing on overall pricing pressures. Elsewhere, the eurozone unemployment rate rose to 7.9% in July, up 0.2 ppts from a revised 7.7% in June. In recent weeks, the governments of Germany and France have extended job retention schemes by up to two years, which could prevent significant job losses in the coming months.
  • In Germany, factory orders rose 2.8% mom in July, continuing a rebound that began in May. However, orders were still 7.3% lower on a yoy basis. Non-eurozone foreign demand, which has been slower to recover than orders within the eurozone, drove the increase as global activity resumes following the lifting of COVID-19 lockdown measures.
  • In Asia, Japan’s industrial production for July expanded 8.0% mom, following a 1.9% mom gain in June. The data showed clear signs of recovery amid a pickup in exports and the resumption of domestic economic activity. Meanwhile, the country’s unemployment rate edged up to 2.9% in July from 2.8% in June as a second wave of COVID-19 infections likely weighed on job offerings (especially in selected services sectors).
  • In India, GDP slumped by a record 23.9% yoy in Q2 compared to growth of 3.1% yoy in the prior quarter as strict nationwide lockdowns were broadly in place throughout April and May, before the first phase of reopening in June. This was worse than market expectations of an 18.0% drop. All sectors except agriculture recorded contractions.
  • The Reserve Bank of Australia's (RBA) cash rate target remained unchanged at 0.25% despite a slower than expected recovery amid a second wave of COVID-19 infections. The RBA expanded its Term Funding Facility providing low-cost credit to households and businesses by AUD57 billion.

The week ahead


  • Headline US CPI inflation is expected to rise to 1.2% yoy in August, from the prior month’s 1.0% yoy. This would be supported by a slight jump in gasoline prices near the end of the month, but the category’s readings are still well under levels a year ago. Subtracting out the volatile food and energy categories, core CPI inflation is pencilled in to remain at 1.6% yoy.


  • In Germany, industrial production is expected to rise 4.5% mom in July. Nevertheless, activity has yet to fully bounce back from the COVID-19 shock, with output anticipated to be 7.0% lower on the year. High-frequency indicators such as truck toll mileage and electricity consumption suggest that the pace of recovery in production may soon slow.  

UK GDP data for July is expected to confirm the country’s ongoing economic recovery

  • UK GDP is likely to rise 6.9% mom in July, extending June’s rebound in economic activity. The reopening of the leisure and hospitality sector and a government scheme to encourage consumers to visit restaurants are likely to have lifted output. Despite the strong recent recovery, UK GDP is likely to remain well below its pre-pandemic level.

In the coming week, the European Central Bank’s policy meeting will be in focus following recent weak inflation data

  • In the eurozone on Thursday, the European Central Bank (ECB) is expected to keep its Deposit Facility Rate at ‑0.50% and all other policy settings unchanged at its latest monetary policy meeting. The meeting comes amid record-low core inflation in August and concerns that the economic recovery in the region may have slowed. Close attention will be paid to the latest staff estimates of economic growth and inflation for clues to the monetary policy outlook.

Emerging markets

  • China’s export growth may have accelerated modestly in August to 7.5% yoy from 7.2% yoy in July (USD terms), as hinted by an improvement in new orders in the manufacturing PMIs and reflecting firmer global growth momentum. Imports are expected to have grown 0.2% yoy following July’s 1.4% yoy decline, amid improving domestic demand and a recovery in import demand for processing trade.
  • Meanwhile, China’s headline CPI inflation likely moderated to 2.4% yoy in August (vs. +2.7% in July), driven by easing food inflation amid base effects in pork prices, while deflation in fuel prices should have lessened. Core CPI inflation likely edged up, given the ongoing normalisation of services demand.
  • In India, industrial production is expected to have picked up over July, as suggested by both high-frequency and monthly indicators such as output from infrastructure industries, power demand, exports and auto production.
  • Brazil’s IBGE Inflation IPCA – a key inflation measure – is anticipated to edge up to 2.4% yoy in August. Significant economic slack is keeping inflation muted, well below pre-Covid rates and policymakers’ 2020 target range of 2.5%-5.5% yoy.

Market moves

Equities: Global stocks fell amid declines in technology shares

  • US stocks fell last week as volatility jumped on Thursday, driven by a sell-off in the large technology companies that have led the market higher in recent months. Despite the losses, markets were supported earlier in the week as talks continued in Washington over the size and scope of the next stimulus package. Overall, the S&P 500 Index fell 2.3%, while the tech-dominated NASDAQ fell 3.3%.
  • European equities also fell last week, tracking US tech stocks sharply lower on Thursday, after rallying on Wednesday amid rising investor expectations of further stimulus measures by the ECB following weaker than expected inflation data on Tuesday and some dovish comments by ECB officials. Overall, the EURO STOXX 50 Index was 1.7% lower on the week. In Germany, the DAX fell 1.5% as France’s CAC 40 ended 0.8% lower. In the UK, the FTSE 100 Index underperformed, down 2.8% on the week.
  • Most Asian stock markets ended the week lower, tracking moves in global markets and volatility in tech shares. Investors also weighed mixed economic data and geopolitical events in the region, including the China-India border standoff. Chinese and Indian stocks posted weekly losses, while Japanese equities rose over the week. In Japan, the ruling LDP will hold its election for party leader on 14 September and the new Prime Minister will be named on 16 September. General Cabinet Secretary Yoshihide Suga is seen as the frontrunner to win the LDP presidency. Mr. Suga has vowed to push forward with Abenomics, especially the combination of active deployment of fiscal stimulus and a large-scale monetary easing programme.

Bonds: Government bonds found support from reduced risk appetite and weak eurozone inflation data

  • Longer-dated US Treasuries rose slightly (yields fell) over the week, with support coming from strong month-end demand and the latest US Federal Reserve purchase operations of 20- and 30-year bonds. A sell-off in US equity markets on Thursday also supported demand for perceived safety assets. Gains were pared on Friday following the release of better than expected nonfarm payrolls data. Yields on 10-year Treasuries ended the week with no change at 0.72%.
  • European government bonds also advanced as weaker than expected regional inflation data raised investor expectations of further stimulus measures by the ECB. During the week, the ECB’s Phillip Lane confirmed that the central bank is uncomfortable with recent strengthening in the euro. Yields on 10-year German bonds declined 6 bps to ‑0.47% while equivalent Italian yields fell 3 bps to 1.02%. In the UK, 10-year gilt yields ended the week 5 bps lower at 0.26% amid dampened risk sentiment.

Commodities: Oil prices fell on fresh oversupply concerns

  • Crude oil prices fell last week amid investor concerns about a drop in gasoline demand and data showing a large increase in oil production by OPEC members. A stronger US dollar also weighed on the market. Overall, WTI crude for October delivery fell 8.1% to USD39.5 per barrel. Meanwhile, gold prices fell 1.6% on the week to USD1,934 per troy ounce amid upbeat US economic data releases and a stronger dollar. 

Sources: Bloomberg and HSBC Global Asset Management. Data as at close of business 4 September 2020.

Sources: Bloomberg and HSBC Global Asset Management. Data as at close of business 4 September 2020.

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