Performance, September 2020



Upcoming US presidential election was the focus of attention

  • The upcoming US presidential election began to attract attention in September. Both because the election campaign seemed to obstruct new coronavirus-related rescue packages and because investors feared rising corporate taxes in case of a potential change of presidents. Moreover, Donald Trump has indicated that he will be making allegations of electoral fraud in connection with postal votes in case of a defeat. A potential change of presidents in the White House may therefore become a dirty and long-term legal fight. This may result in a political deadlock, and resultant uncertainty is usually poison for the financial markets. Investors already got a foretaste of the dirty tricks at the duellists’ first TV debate which turned into an unsightly dogfight. Although Donald Trump lags behind in the opinion polls, he is beginning to gain increasing support in the important swing states. So, nothing seems to have been decided yet.

British Prime Minister Boris Johnson created new Brexit turmoil

  • Over September, British Prime Minister Boris Johnson almost derailed Brexit negotiations with his announcements which were interpreted to the effect that he was not willing to respect the already signed exit treaty’s provisions on Northern Ireland. This happens at a point in time when negotiations about the future trade relations between the EU and the UK seem rather bleak. If the UK leaves the EU at year-end without a trade agreement in place, it will, among other things, affect the many continental-European companies with strong business relations with the British. The concern was, for instance, visible in the decline of pound sterling in the course of September.

Coronavirus lies as a rain cloud above the economies – but it is only dripping

  • The grey clouds of coronavirus again seemed to gather in September – after it had otherwise begun to brighten on the back of the cloudburst in the spring. The number of coronavirus-related deaths reached one million, and infection numbers were on the increase again especially in Europe. Despite the alarming figures and renewed measures several sentiment indicators showed that the economies are still tending upwards from the dramatic low in the spring. For instance the IFO survey showed rising optimism in the German industrial sector. The Federal Reserve has, as a countermeasure to the economic recession, made new announcements about low interest rates up to 2023 and additional bond purchases.

Market performance

US presidential election and coronavirus spilled over into the markets in September

  • Global equity markets took a breather in the form of a fall of 1.3% in September following the very strong comeback in the previous months. At end-August, the markets had in five months on end increased by a total of 22% and had almost caught up with the coronavirus-related price shock from March. The sources behind the moderate price decline in September were, among others, sluggishness with new rescue packages in the US due to the upcoming presidential election and renewed increases in infection numbers. Add to this new turmoil around Brexit. Concerns were, however, partly kept in check by new announcements from the Fed and by continued optimistic sentiment indicators. These indicators showed that the economies managed to take the markets by positive surprise despite coronavirus-related problems.

Marginally lower bond yields

  • Bond yields saw a downward trend in September. The general theme in the markets is still the coronavirus pandemic. Infection numbers in Denmark and in many other countries have been on the rise, but in Denmark the number of hospitalisations have been moderate, and there are only few deaths. Moreover, Denmark has so far avoided major lockdowns, which reduces the impact on the economy. In the Danish market, issue ac-tivity has been moderate whereas the demand is still good. Returns have generally been positive with callable bonds being the best segment.

Turmoil in the former Soviet countries

  • The US presidential election is approaching and has generated jitters in the equity markets. This has spilled over into the emerging bond markets where especially the weak countries have been hit led by Sri Lanka, Argentina and El Salvador, whereas the more conservative countries have been supported by stable US yields. The former Soviet countries have been weakened by ”the war” between Armenia and Azerbaijan and continued political turmoil in Belarus after the election in September. The Russian rouble has weakened by just below 3% whereas several Central European currencies have been hit by a slight comeback to USD. Covid-19 still generated uncertainty as to how the individual countries will emerge after the pandemic. Countries with a sound breadth of their economies are expected to stand out positively whereas the weak economies’ budgets and trade relations with other countries may seriously be put on show. Emerging-market bonds (external debt) shed 1.69% whereas emerging local market bonds closed September at +0.04%.

Credit markets in September

  • The yield spreads of both investment grade and high yield widened marginally over September – but sufficient for the yields to turn negative. The news flow was dominated by ongoing updates about the US election and the coronavirus situation – and with relatively scarce company-specific news. The spread widening was, however, due to a large amount of new issues, in investment grade as well as high yield.