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.