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.