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.