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    Month: September 2020

    Market Update 25/09/20

    Stocks fell last week, marking the longest weekly slide since 2019, as investors continue to digest news that U.S./China trade tensions are rising, a coronavirus vaccine won’t be widely available until April of 2021, jobs data came out worse than expected, and expectations are fading that a new fiscal stimulus package will be passed.

    Mega-cap stocks outperformed the S&P 500 last week, but Microsoft, Apple, Netflix, Amazon and Facebook are all still down for the month. Small-cap and cyclical stocks were hardest hit by the news that a vaccine is further away than initially thought. Ruth Bader Ginsburg’s death has ushered in fears that stimulus talks between Republicans and Democrats could be overshadowed by a political battle for a Supreme Court nominee. A surge in coronavirus cases in Europe has also seen investors shun some European stocks on fears that economic restrictions could be reestablished.

    The US equity market has fallen by 2.2% over the week, whilst technology stocks have lost 1.1%. European markets fell by 4.5%, UK equities lost 3.8%, with the more domestically focused mid-cap stocks losing 5.4%. Japanese equities are down 0.7%, whilst Australian stocks were one of the few bright spots, rising 1.7%. Emerging markets in aggregate gave up 4.6%.

    Haven government bonds have provided a little protection, although with yields so low their benefits to investors as a haven are reducing. 10-year US Treasuries are trading higher, currently yielding 0.66%, and similarly, German bunds are now trading at a yield of minus 0.52%. However, UK gilts sold off a little this week as the Bank of England poured water on rising expectations of negative interest rates anytime soon. 10-year Gilts are currently trading at 0.19%

    Gold sold off 5.0%, with gold mining equities falling by over 7% over the week, not helped by the US dollar strengthening. Copper fell 3.9%, whilst Brent and US WTI (West Texas Intermediate) crude oil fell 3.0% and 2.3% respectively.

    Several countries across Europe have tightened rules on social interaction in response to a rise in the number of coronavirus cases. However, to date, none have opted for a full national lockdown, although none have ruled it out either. The UK’s Chancellor, Rishi Sunak, announced plans to replace the employment furlough scheme, which finishes at the end of October, with a German-style subsidy plan, with the Treasury subsidising employees who worked at least one-third of their usual hours. Despite this, unemployment is expected to pick up sharply, with Goldman Sachs forecasting as many as 2.2 million people in the UK likely to be added to the officially unemployed in the coming months.

    Economic data has been mixed with US house sales continuing to be a bright spot, whilst initial jobless claims have risen versus recent weeks. In Europe, whilst leading indicators as to manufacturing activity have remained robust, pointing to continued expansion, the service sector slipped back into contraction. The Market Eurozone Services PMI (purchasing managers index), a leading indicator as to new orders and hiring intentions, slipped to 47.6 this week, with 50 marking the dividing line between contraction and expansion.

    A further slide in markets was averted on Thursday, on news that Nancy Pelosi, Democratic speaker of the House of Representatives in the US, was ready once more to try and renegotiate a new coronavirus relief plan.

    Market Update 18/09/2020

    U.S. stocks closed at a six-week low, driven by weakness in technology stocks, which exert an outsized influence on major indexes because of their size. Even though more than 70% of the S&P 500 stocks were higher, the index closed lower for the third week in a row. On the flip side, cyclical, small-cap and international stocks, and oil, all rebounded, finishing positive for the week. The Federal Reserve signalled that it will keep rates near zero through at least 2023 to help the economy weather the health and economic crisis.

    Economic data showed that the economic recovery is progressing, but the pace of improvement is slowing.However, Chinese equities rose, and the renminbi had its best week since November 2019 as retail sales rose by 0.5% in August versus one year earlier, providing some evidence that perhaps the world’s second-largest economy is starting to experience a sustainable economic recovery.

    US stocks rose 0.5%, matched by US technology stocks, recovering some of their losses suffered in the preceding week. European equities increased by 1.0% despite the escalation in Covid19 cases, as investors continued to take the view that any future lockdowns would be implemented locally rather than nationally. UK equities rose 0.4%, with the country suffering a similar increase in the Covid19 infection rate, as the government implemented a lockdown of the northeast of England. Japanese equities rose 0.6%, as Yoshihide Suga was formerly announced as the new Prime Minister following the early resignation of Shinzo Abe due to ill health. Australian equities increased by 0.1%, whilst Asia Pacific excluding Japan as a whole increased by 1.1%. Within this, Chinese domestic shares were up by 2.4%, as the Chinese Renminbi strengthened versus the US dollar by 1.1%.

    The 10-year yield on US Treasuries rose a little (yields move inversely to price), now trading at 0.68% as the Fed maintained its QE purchases at $120 billion per month, split between Treasuries, $80 billion, and mortgage-backed securities, $40 billion. The Fed’s forecast for the contraction in US demand was significantly reduced this week, with the Fed now forecasting a contraction of 3.7% versus their forecast of a 6.5% loss in June. Whilst German bunds strengthened further, now yielding minus 0.50%. UK gilts also rose, now yielding 0.17%, as the Bank of England announced that it was exploring how it would implement negative interest rates should they be required. Market commentators suggested that negative interest rates may be considered by the Bank of England in the event of a hard Brexit.

    Crude oil bounced back having sold off last week, with Brent crude climbing almost 9%, now trading at $43.4 a barrel and US WTI (West Texas Intermediate) rose by almost 10%, now trading at $41.0. Copper made further steady progress, rising by over 2%, having risen by 46% since its nadir in March. Copper is considered as a good bell weather to overall global economic growth. Gold was broadly steady, rising by 0.8%, trading at $1,962 a troy ounce.

    Market Update 11/09/2020

    Stocks declined for the second straight week, as technology stocks experienced their worst pullback since March. There was no single catalyst for the move lower, which left the Nasdaq about 10% below its all-time high reached just six trading days ago. However, broad valuation concerns, skepticism about a compromise on a coronavirus stimulus package before the election, and signs of slowing progress in the labor market all contributed to the negative sentiment. However, European equity markets, which have lagged the US despite having greater control over the Covid19 outbreak, rose over the week.

    US equities fell 2.6% over the week, with the technology sector giving up a further 3.5% on top of last weeks losses. However, despite this, US technology stocks have still recorded gains over twenty percent year to date, as the economic lockdowns put in place by developed countries have led to an acceleration in structural trends already underway, such as home working and internet shopping. European equities rose 1.5%, whilst UK equities increased by 3.3%. Concerns arose that the UK government is considering overriding elements of the withdrawal agreement put in place with the European Union, despite acknowledging that this would be breaking international law. This led to a slump in the value of sterling, thereby boosting the earnings of UK companies whose profits are derived from outside of the country. Japanese equities were up 1.2%, whilst Australian stocks fell 1.1%, and Emerging markets fell 1.3% in aggregate.

    Government bond yields, which move inversely to price, fell this week as the risk off sentiment in US equities permeated into the bond market, with the 10-year Treasury touching 0.66% at its lowest point. However, an auction of $35bn worth of 10-year Treasuries went for a yield of 0.70%, slightly higher than the yield achieved at the previous auction of 0.67%. US Treasuries are now trading at a yield of 0.69%, German Bunds minus 0.46% and UK Gilts 0.22%, all down over the week.

    Crude oil suffered further weakness this week too, as oil traders bet that the demand for oil would weaken from here now that the summer driving season is ending. At close, the price of crude oil fell by 5%, having fallen by almost 15% since the end of August, making energy stocks one of the worst performing sectors over the week. Brent crude is currently trading at $40.0 a barrel and US WTI (West Texas Intermediate) $37.4.

    Despite the Eurozones fall into deflation for the month of August, the European Central Bank (ECB) left monetary policy unchanged in its latest meeting, with interest rates held at minus 0.5%. Perhaps somewhat unexpectedly, the central bank also revised up their inflation forecast for next year to 1%, from 0.8% previously. This change was partly explained by government plans to boost spending. The Euro has now appreciated by over 10% versus the US dollar since March, acting as a headwind to the ECB reaching its inflation target and making European exporters less competitive.

    Market Update – 04/09/2020

    The equity markets saw volatility return last week, with Thursday seeing declines of 3% and Friday 1%. Before this last week, the S&P 500 advanced for four straight weeks, with technology stocks leading the index to a new record high.

    The strength of the stock market, though, seemingly disconnected from current economic fundamentals, has been supported to date by aggressive fiscal and monetary stimulus and stronger-than-expected economic indicators of future growth. Investors also await US employment data after disappointing private-sector employment data released halfway through the week.

    US equities were down for the week by 1.5%, with the technology sector recording a 2% fall, following record all-time highs having been reached on Wednesday. European equities, which have much lower exposure to technology, were down by 1% and UK equities were 1.8% lower. Japanese equities were 0.7% higher whilst Australian shares were down by 2.4%. Emerging markets lost 1.1% although there was a wide dispersion of returns between countries.

    The fall in US technology stock was brushed away as a healthy correction by many, as the five largest US stocks, with a combined value of $8 trillion, had been trading on an average price to earnings ratio of 44 times, close to the 50 times P/E ratio peak for the five biggest stocks during the dotcom bubble.

    Against a backdrop of soft equity markets, disappointing private-sector employment data out of the US and news that the Eurozone had slipped into deflation for the month of August, government bond yields fell (yields move inversely to price), with 10-year US Treasuries currently yielding 0.72%, German Bunds minus 0.47% and UK Gilts 0.26%.

    Amongst commodities, gold fell by 1.4% over the week, now trading at $1,928 an ounce, and copper slipped by 0.23%. However, iron ore had a strong week, rallying by over 5%. Crude oil weakened, as Brent crude fell by 1.8%, now trading at $44.2 a barrel, and US WTI (West Texas Intermediate) fell by 3.2%, trading at $39.2.

    The official manufacturing PMI came in at 51 for August, with any number above 50 indicating expansion, whilst the non-manufacturing PMI came in at 55.2, higher than forecast. Tesla, the US electric car manufacturer surged by almost 13% in one day following a five for one stock split, having rallied by 74% in the month of August alone, and up almost five times this year. However, on Wednesday, data released on the Eurozone showed that headline inflation had fallen by 0.2% in August, down from an increase of 0.4% in July. Deflation had impacted 12 of the 19 countries, including Germany, Italy, Spain, Portugal and Greece.

    This puts further pressure on the European Central Bank for yet more stimulus, following the central bank citing in June that one of the key reasons for increasing its emergency bond-buying programme from €750bn to €1.35trn had been due to weak inflation expectations.

    The information contained in this article is believed to be correct but cannot be guaranteed. Past performance is not a reliable indicator of future results. The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor may not get back the original amount invested. Opinions constitute our judgment as at the date shown and are subject to change without notice. This document is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation.
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