Market Update 02/10/20
Stocks brushed off the uncertainties around the economic recovery and finished the week higher on hopes that Congress will reach a deal on another coronavirus-relief bill. Attention turned back to the virus and its effects after news that President Trump and First Lady Melania Trump have both tested positive for COVID-19 and that they will be going into quarantine. On the economic front, the U.S. economy added 661,000 jobs, marking a slowdown in the pace of job gains, but the unemployment rate came in better than expected at 7.9%. Investors’ attention has also been focused on Europe’s attempts to manage a second wave of coronavirus infections, with efforts to contain the virus being managed at a local level so far, although the threat of national lockdowns has not been ruled out.
US equities rose over the week by 2.5%, with technology stocks having climbed by 3.8%. European equities increased by 1.1%, whilst the UK market only managed a modest increase of 0.2%, held back by Sterling strength, as hopes were raised that a hard Brexit could still be avoided. More domestically focused UK mid cap stocks rose by 1.2% over the week. Japanese stocks lost 1.5%, not helped by a lost day of trading due to a technical problem at the Tokyo stock exchange on Thursday. Australian shares also fell by 2.9%, in contrast to Emerging Markets which rose by 2.4%.
US Government bond yields rose a little (yields move inversely to price), with 10-year US Treasuries currently yielding 0.71%, and, similarly, UK gilt yields rose, currently yielding 0.25%, whilst German bunds fell further into negative territory, now yielding minus 0.54%. Gold rose by 2.5%, now trading at $1,900 an ounce. Crude oil fell sharply, with Brent crude losing 6.3%, trading at $40.17 a barrel, and US WTI (West Texas Intermediate) fell 7.8%, currently trading at $38.05
In Australia, equity markets fell by 2.9%, suffering their worst weekly performance since April, after news that US President Trump and the First Lady tested positive for the virus. Prior to this, the main Australian market was only trailing lower over the week by approximately 0.3%. In fact, the index improved slightly following reports that New Zealanders will be able to travel to New South Wales and the Northern Territory in Australia without needing to quarantine in a one-way travel bubble from October 16th. This particularly benefitted travel and airline companies. However, all sectors fell on Friday, with the biggest detractors in the Energy sector which was already under pressure following a fall in the oil price overnight. The sector traded down by 4.01% on Friday alone.
The latest purchasing managers indices (PMI), which provide forward guidance as to the operating environment companies find themselves within, continued to point towards expansion, although some of the data was weaker than forecast. The Markit US Manufacturing PMI came in at 53.2, with any number above 50 indicating expansion, although this narrowly missed forecasts. Similarly, the US Institute for Supply Management manufacturing survey came in at 55.4, below forecasts of 56.5, with new orders coming in at 60.2, also below expectations of 65.2. The Eurozone manufacturing PMI came inline with expectations with a reading of 53.7, also pointing towards expansion, and it was a similar story for the UK, coming in at 54.1.