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Month: December 2020

Market Update 24/12/20

Stocks were mixed last week as investors weighed lawmakers’ approval of a long-awaited relief bill against ongoing virus concerns and new U.K. travel bans. Small cap and technology stocks were up, with both the Russell 2000 and Nasdaq indexes finishing the week higher. The U.S. has continued its vaccination effort, with over 1 million people receiving the first dose of the new vaccine. Markets closed early Thursday and were shuttered on Friday in observance of the Christmas holiday.

News of a new and apparently more transmissible coronavirus strain in the UK started the trading week off on a decidedly down note, with stock futures lower by over 3% on Monday morning. The market shrugged off its losses as trading began, however, with investors seemingly calmed by reassurances from U.S. health officials that the new strain did not appear more deadly and would likely be treatable by the vaccines. Signs that the latest wave of the pandemic might be peaking in much of the country, along with news that the U.S. government had contracted for another 100 million doses of the Pfizer-BioNTech vaccine, seemed to bolster sentiment as the week progressed. Distribution of the first doses of the Moderna vaccine also began on Monday.

Shares in Europe were roughly flat for the week ended Thursday, as hopes for a UK-European Union (EU) trade deal helped reverse sharp losses caused by the emergence of a new variant of the coronavirus. The UK and the EU did finally agree on a post-Brexit trade deal, with the announcement coming after UK markets closed. The accord still must be approved by all EU member states. The agreement’s terms would represent a significant change in the relationship with the UK’s major trading partner and, some say, amounts to a “hard” Brexit in all but name.

The Office for Budget Responsibility has forecast that Brexit will cost the UK 4% of its gross domestic product (GDP) over 15 years. The UK’s official statistics agency’s revised estimate of third-quarter GDP showed the economy shrinking 8.6% from year-ago levels—an improvement from the earlier estimate of a 9.7% contraction.

China’s benchmark stock index fell for the week ended Thursday as a flareup in Sino-U.S. tensions weighed on sentiment. The Shanghai Stock Exchange (SSE) Composite Index shed 1.0% over the four days ended Thursday, while the large-cap CSI 300 Index was nearly flat. The SSE Index recorded its biggest one-day percentage drop since September after the list was published, which marked the latest instance of U.S. actions targeting Chinese companies as President Trump prepares to leave office.

Japanese stocks declined for the week through Thursday. The Nikkei 225 Stock Average fell 0.4% (95 points) and closed at 26,668.35. For the year-to-date period, the benchmark is ahead 12.7%. The large-cap TOPIX Index and the TOPIX Small Index, broader measures of Japanese stock market performance, also recorded modest losses. The yen was little changed versus the U.S. dollar and traded in a narrow range between JPY 103 and JPY 104 on Thursday.

U.S. Government-Bond Yields rose on post-brexit trade deal hopes. The yield on the benchmark 10-year U.S. Treasury note was 0.96%, compared with 0.92% on Tuesday. More directly impacted by the trade news, yields on European government bonds also climbed, with the 10-year German bond yield rising to minus 0.541% from minus 0.589% and the 10-year U.K. yield jumping to 0.29% from 0.18%.

In the commodities market, oil volatility also increased this week. The tightening of oil supply was supporting prices, but renewed global growth concerns are overshadowing the demand side adding pressure on WTI and Brent Crude. Gold reached a high of $1,324.49 during the week before retreating to $1,292 towards the end of the week following the recovery of the US dollar.

Market Update 18/12/2020

Stocks edged higher last week, with all major U.S. indexes hitting fresh all-time highs. Fiscal-stimulus optimism, along with a brighter longer-term outlook driven by the rollout of vaccines, continues to support sentiment. Long-term Treasury yields rose modestly, and oil logged its seventh straight weekly gain. Economic data were mixed, revealing that the economic recovery is losing some momentum amidst rising virus cases and renewed restrictions in activity. The weakness in retail sales and the recent slowdown in job growth sharpened the market’s focus on fiscal aid. Congress appears to be closing in on an agreement on a relief bill worth $900 billion.

US equities over the week rose 1.6%, with US technology stocks rising 3.1%. European equities climbed 1.9%, whilst UK equities rose by 0.8%, held back by Sterling strengthening on renewed hopes that a deal can be struck between with the EU on Brexit. UK mid-cap stocks, which are more domestically orientated, rose by 3.9% over the week. Japanese stocks were up 0.6%, whilst Australian equities advanced by 0.5%. Emerging markets rose by 1.2% in aggregate, whilst the Latin American subset rose 3.4%, helped by the oil price holding on to recent gains and further weakening of the US dollar.

US Treasury yields, which move inversely to price, moved up a little over the week on optimism as to the outlook for 2021. 10-year US Treasury yields are now trading at 0.93%, similarly, German bund and UK gilts yields both moved higher, trading at -0.57% and 0.26% respectively.

Copper, considered a good barometer as to the health of the global economy, rose a further 2.7%, having risen over 70% since its low point in March. Oil also made further gains, with Brent crude rising 2.8%, now trading at $51.4 a barrel, having traded at beneath $20 a barrel in April.

The gold price moved higher by 2.6% over the week, now trading at $1,891, having risen by 22% since the start of the year. However, this has been dwarfed by the increase in Bitcoin, which has risen by over 200% this year, as speculators and investors alike have become increasingly interested in alternatives to national currencies that cannot be manipulated by governments.

With another deadline having passed last weekend, the UK and EU choose to continue negotiating over Brexit, with neither party wishing to be the cause of a ‘no deal’. The sticking points remain the issue of fair competition between European and British companies and fishing. The European side headed up by the president of the European Commission, Ursula von der Leyen, suggested that substantial progress had been made, leading to a rally in Sterling over the week. Although in truth, this was flattered by US dollar weakness. Sterling briefly traded above $1.36, its highest level against the dollar in over two years, whilst it traded above €1.11, before settling down to $1.353 and €1.104 by Friday, as the UK government reported that fundamental differences remained between the two sides.

This week’s trading will be cut short by the Christmas holiday on Friday, and markets will close early on Thursday. Data being released include personal income and consumption, consumer sentiment, and new home sales.

Market Update 11/12/2020

Markets have paused this week, with the rotation into more cyclical stocks slowing down whilst Covid19 still rages across many countries and social distancing looks set to remain with us for several more months. Brexit, four years on from the EU referendum, has come to the front of investors minds, as the risks of no dealhave seemingly increased this week, with Sterling losing ground.

The week began on a bright note, with news that Chinese exports in November grew at their fastest pace this year, helping China to record its highest ever monthly trade surplus. Britain dropped controversial parts of a bill that breach its EU withdrawal treaty, raising hopes that a compromise may be possible with Europe. Whilst the European Central Bank expanded its €1.35 trillion emergency bond-buying programme by another €500bn and extended it until March 2022 and maintained its deposit rate at minus 0.5%.

However, by Thursday, following negotiations over dinner between Prime Minister Boris Johnson and European Commission president Ursula von der Leyen, differences over future regulatory equivalence and fishing rights were preventing a deal being agreed. This led to Boris warning the UK to prepare for a no dealBrexit, whilst similarly, von der Leyen, reported back to the EU summit on Friday that no dealwas a high probability.

European shares fell on concerns about the rising numbers of coronavirus cases in key economies and uncertainty surrounding a post-Brexit trade deal and U.S. stimulus measures. In local currency terms, the pan-European STOXX Europe 600 Index ended the week about 1.00% lower, while Germanys DAX Index fell 1.39%, Frances CAC 40 declined 1.81%, and Italys FTSE MIB tumbled 2.15%. The UKs FTSE 100 Index was flat.

In the US, major indexes hit new highs on Wednesday but pulled back to end the week mixed. The small-cap Russell 2000 Index outpaced the large-cap S&P 500 Index for the fifth consecutive week and recorded a modest gain. Within the S&P 500, the energy sector outperformed by a wide margin, as international (Brent) oil prices crossed USD 50 per barrel for the first time since the onset of the pandemic. Information technology and real estate shares underperformed. The week was also notable for the initial public offerings (IPOs) of Airbnb and DoorDash, two of the largest to date in 2020. Shares in both internet companies rose sharply once trading began.

China equities fell on renewed tensions with the U.S. after a second major index provider removed some Chinese companies from its benchmarks following a Trump administration executive order. The large-cap CSI 300 Index sank 3.5%, its biggest weekly drop since September, and the Shanghai Composite Index shed 2.8%. Sentiment weakened after S&P Dow Jones Indices (S&P DJI) said it would remove 21 Chinese companies from its global stock and bond benchmarks after the U.S. Defense Department earlier this year designated the companies as having ties to Chinas military. The move by S&P DJI followed a similar decision by FTSE Russell the previous week and comes as other index providers, including JP Morgan, MSCI, and Nasdaq, are deliberating whether to do the same.

UK gilts strengthened over the week as the yield on 10-year gilts fell from 0.35% at the beginning of the week, down to 0.16%. Similarly, German bunds fell from a yield of minus 0.55% to minus 0.64%, with yields moving inversely to price. US Treasuries also strengthened a little over the week, with the 10-year yield falling to 0.89% as initial new jobless claims climbed to 853,000 last week, up from 716,000 the previous week, as a surge in coronavirus cases has led to a new round of lockdowns in the US.

Crude oil continued to strengthen as markets have become increasingly positive on vaccines, with Brent crude now trading at $50.0 a barrel. Copper, considered a barometer to the strength of global GDP growth, continued to strengthen, now having risen over 60% since its March low.

Market Update 4/12/20

Global equities edged higher this week as the market’s historic rally extended to the first week of December. Despite a notable slowdown in hiring that was revealed in the November jobs report, major indexes closed at record highs and Treasury yields rose, reflecting expectations for additional fiscal stimulus. Mitch McConnell, the most senior Republican in the US Senate, said that an agreement was within reach”, two days after a bipartisan group of senators unveiled a $908bn Coronavirus relief bill.

Shares in Europe paused after last months strong rally. In local currency terms, the pan-European STOXX Europe 600 Index ended the week with a modest 0.21% gain. Major European indexes were mixed: Frances CAC 40 ticked up 0.20%, Germanys DAX Index fell 0.28%, and Italys FTSE MIB slipped 0.78%. The UKs FTSE 100 Index, however, gained 2.87%, reaching nine-month highs on news that the UK had approved the coronavirus vaccine developed by Pfizer and BioNTech.

US Equities reached further into record territory, with all of the major indexes touching new intraday highs by Friday. Energy shares bounced back after OPEC and other major oil producers reached an agreement to ease output cuts more gradually next year than previously planned, while utilities stocks lagged. On Monday, the Dow Jones Industrial Average closed out November with its best monthly performance since 1987, while the small-cap Russell 2000 Index registered its best monthly gain since its inception in 1978.

Chinese stocks posted their third straight weekly gain, aided by solid economic data. The large-cap CSI 300 Index rose 1.7%, and the benchmark Shanghai Composite Index gained 1.1%, according to Reuters. The yield on Chinas 10-year sovereign bond edged lower 3 basis points to end at 3.33%. In currency markets, the renminbi appreciated by 0.5% against the U.S. dollar to CNY 6.5342.

Japanese stocks posted mixed results for the week. The Nikkei 225 Stock Average advanced 0.4% (107 points) and closed at 26,751.24. For the year-to-date period, the benchmark is ahead 13.1%. The large-cap TOPIX Index and the TOPIX Small Index, broader measures of Japanese stock market performance, recorded modest weekly declines. The yen was little changed versus the U.S. dollar and traded near JPY 104 on Friday.

With the rally in riskier assets, demand for safe-haven government bonds waned this week. Furthermore, investors are weighing up the potential of inflation rising next year if US stimulus spending measures are approved. The prospect of higher inflation erodes the purchasing power of future bond coupons, hence the negative impact on bonds. This is particularly the case for longer-dated government bonds, as the US 10-year treasury yield, which moves inversely to bond prices, rose 9 basis points to 0.91%. 30-year US treasury yields also rose by 11 basis points, equating to a 1.33% loss. 10-year equivalent UK and German government bonds also lagged this week, with yields rising by 3 and 5 basis points respectively.

Industrial commodities reacted extremely positively to the Chinese industrial data this week. Iron ore prices boomed to seven-year highs, up 13.2%, whilst copper also rallied higher by 3.46%. Oil prices also received a boost, as Russia and OPEC agreed to increase supply less than expected. The agreement is to boost output by 500,000 barrels a day from next year, only a quarter of what had been agreed as members are cautious over fears of oversupply. The Brent Crude oil price reached $49.39 a barrel; a 9-month high.

Important economic data being released include the small business optimism index on Tuesday, inflation on Thursday, and consumer sentiment on Friday.

Market Update 29/11/20

Equity markets made further ground over the week, with global stocks on track for their best month on record. Positive coronavirus-vaccine news, helped propel the Dow Jones up more than 12% for the month, crossing the 30,000 mark for the first time, and on-track to have the best monthly gain since January 1987. Economic data releases were light, putting the emphasis on the high-wire act investors are walking between positive vaccine news and rapidly climbing COVID-19 cases and hospitalisations.

US equities over the week rose 2.0%, whilst European equities increased by 0.6% and UK equities fell 0.4%. Japanese equities rose 3.4%, having reached their highest level in two years this week. Australian stocks were up by 1.0% whilst Emerging Markets climbed 1.7%.

However, at a sector level, global energy stocks were up over 8%, buoyed by the rise in oil prices, with Brent crude having risen by 7.6%, now trading at $48.4 a barrel as energy traders bid up the commodity on hopes to the end of the pandemic. Conversely, Gold equities fell 4.4% as the gold price dropped by 3.7% and is now trading at $1,809 an ounce as investors sold the haven asset. Global banks rose 5.1%, with hopes that dividends may be restored in the coming weeks. Hotel and leisure stocks were up 2.9%, whilst Airlines climbed 7.8%.

Government bond yields remained largely anchored this week, with 10-year US Treasuries rising a little, now yielding 0.86%, German bund yields are unchanged at -0.58%, and UK gilt yields are a little lower, yielding 0.29%.

The European Purchasing Managers Index (PMI) for the Service sector was released this week, coming in beneath expectations at 41.3, with any figure lower than 50 representing contraction. PMI data consists of company surveys seeking to gauge the operating environment companies find themselves within, including new orders, hiring intentions, etc. and are considered a leading indicator by investors. Lockdowns have hurt the service sector much more than manufacturing, for which the PMI came in at 53.6, slightly higher than expectations and indicating expansion. Chancellor Angela Merkel announced this week that Germany’s current social distancing restrictions would continue until at least the 20th of December and may be extended into January.

Despite PMI data beating expectations in the US this week, with both the manufacturing and service sectors recording expansion, initial jobless claims came in higher than expected. This has raised fears that ahead of a vaccine being rolled out the increase in Covid19 cases being experienced in the US could increase local lockdowns and, in the immediate term, slow economic growth.

The UK’s Office for Budget Responsibility forecast that it expected the British economy to shrink by 11.3% this year, and not return to its pre-pandemic size until the end of 2022. No further progress was made on Brexit negotiations this week, with the final deadline only five weeks away. However, it is widely recognised that all the important decisions in European negotiations always happen in the final twenty-four hours.

Economic series being released this week include pending home sales, Manufacturing PMI, and the unemployment rate.

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