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Market Update

Weekly Market Update 19/02/21

Shares in Europe ended the week modestly higher, supported by companies delivering reassuring quarterly earnings. Those gains were tempered, however, by worries that rising inflation and higher bond yields might prompt central banks to tighten monetary policy. In local currency terms, the STOXX Europe 600 Index advanced 0.21%. Equities in Germany and Italy fell, while France’s CAC 40 Index and the UK’s FTSE 100 Index gained ground.

Core euro-zone bond yields rose. The yield on 10-year German bonds hit -0.32% on Friday, the highest level since June 2020, as rising US inflation expectations weighed on core asset demand. Strong Purchasing Managers’ Index (PMI) numbers also put upward pressure on yields. Yields on peripheral euro-zone bonds largely tracked core markets. Ten-year gilt yields reached 0.64% on Friday, up from 0.57% at the start of the week.

The major US indexes ended the holiday-shortened trading week mostly lower, with the large-cap benchmarks and technology-heavy Nasdaq Composite index hitting record intraday highs before falling back. A boost in longer-term interest rates weighed on fast-growing technology stocks by raising the discount rate on future profits. Conversely, the increase favoured bank shares by boosting lending margins and helping value shares– heavily weighted in financial– outperform growth stocks.

Trading began Tuesday on a solid note, attributed to a mixture of hopes for further fiscal stimulus, continued soft monetary policy, a better-than-expected fourth-quarter earnings season, and progression in fighting the coronavirus. Wall Street also seemed stimulated by a Bloomberg report that vaccine supply is anticipated to double by April, partly thanks to the approval of additional candidates.

US stocks fell on Thursday morning after Walmart reported weaker-than-expected earnings. The company also forecast slower earnings growth in the coming year, in part due to its commitment to raise the average wage of its employees to $15 an hour. The news followed Wednesday’s Labor Department report that producer prices rose 1.3% in January, the largest increase since December 2009. Retail sales also rose by 5.3% in the month – well above consensus expectations of a 1.1% gain, which many attributed to 600 dollars in direct payments to lower- and middle-income Americans approved as part of the December stimulus package. Weekly jobless claims, reported Thursday, jumped to 861,000, the highest level since mid-January. Data on the housing market also surprised on the downside, with house prices falling sharply from a nearly 14-year high. Inflation worries and retail sales data helped push the yield on the 10-year U.S. Treasury note to its highest level in nearly a year.

Japan’s stock benchmarks produced mixed results for the week. The Nikkei 225 Stock Average advanced 1.7% (497.85 points) and closed at 30,017.92. This was the first time the widely watched benchmark had topped the 30,000 milestone in more than 30 years– although it remained well below the all-time high of 38,597 it reached in 1989. For the year-to-date period, the Nikkei index is ahead 9.38%. The broader equity market benchmarks, the large-cap TOPIX Index and the TOPIX Small Index, finished the week with modest losses. In other market news, the yen was slightly weaker and traded above JPY 105 versus the U.S. dollar on Friday. Meanwhile, the yield of the 10-year Japanese government bond finished the week at 0.11%, the highest level since November 2018.

Chinese shares ended on a mixed note on a holiday-shortened week. The large-cap CSI 300 Index slipped 0.5%, while the benchmark Shanghai Composite Index rose 1.1%. China’s financial markets reopened Thursday, February 18, after a weeklong Lunar New Year holiday. In fixed income markets, the yield on China’s 10-year government bond closed at 3.31%, five basis points above its pre-holiday level. The People’s Bank of China (PBOC) drained RMB 260 billion from the financial system, which dampened buying momentum. Now that China’s economy is on firm footing, analysts expect the PBOC will gradually dial back pandemic stimulus measures. In currency trading, the renminbi closed at 6.487 against the U.S. dollar, slightly weaker from its pre-holiday level.

Commodities traded lower for a second week with the US and China attempting to get a trade deal across the finish line. Gold found support at a key level while a week-long oil rally ran out of steam with OPEC+ under pressure to cut production further. West Texas Intermediate fell $1.28 to settle at $59.24 a barrel, falling less than 1% over the week. Brent for the April settlement slipped $1.02 to end the session at $62.91 a barrel, posting its largest daily drop since 15th January.

Weekly Market Update 15/01/21

Despite the rollout of vaccines accelerating across much of the developed world, markets dropped back this week, as the pandemic continues to rage across the globe, leading to tighter lockdowns being implemented in multiple countries. President-elect Joe Biden announced a $1.9 trillion fiscal-stimulus plan that aims to counter the effects of COVID-19. However, there has also been mention of the second stage of the new administration’s plan calling for longer-term spending on infrastructure, green energy and education. This is to be funded, at least partly, by increasing taxes on higher corporations and earners, and although investors expect this, it is being conveyed earlier than markets anticipated.

US equities were down 0.8% over the week, with US technology stocks having fallen 0.7%. European equities are down 0.6%, whilst UK equities have lost 1.9%, with more domestic mid-cap stocks having fallen 2.4%. Australian equities dropped 0.6%, whilst Japan eked out a modest gain, rising 0.1%. Emerging markets in aggregate, however, continued to prosper, rising 1.3%.

US Treasuries over the week were flat, with the 10-year yielding 1.11%, however, intra week, the yield briefly exceeded 1.18% before falling back, as numbers of newly unemployed workers in the US rose last week at its fastest pace since August. German bunds are yielding -0.54% and UK gilts 0.30%.

Crude oil hit its highest level in ten months on Tuesday, with Brent crude trading at $56.75 a barrel. However, as economic lockdowns in the short term tighten, there is an expectation for the recent price strength to weaken, at least in the short term.

Markets are being buoyed by the twin news of stimulus from governments and central banks, and the rollout of vaccines. To date, the news on the effectiveness of the vaccines and the acceleration in rollout programmes is largely encouraging, notwithstanding the continued emergence of new virus strains. Therefore, all things being equal, when lockdowns come to an end, the global economy should experience a significant acceleration, benefiting many of those stocks left behind in the pandemic. However, exactly when a ‘return to normal’ is experienced is an entirely different question.

Inflation is widely expected to bounce back from March onwards. However, investors are then split between those that believe, in the medium term, deflationary pressures will re-exert themselves versus those that believe inflationary pressures will remain.

Those in the deflationary camp point towards ageing populations, indebtedness, and technological change. Whilst those in the inflationary camp point towards massive amounts of monetary and fiscal stimulus, a well-functioning banking sector encourages further credit creation and longer-term structural unemployment, meaning there is less slack in the economies than headline figures suggest. Getting this call right is arguably one of the most important decisions investors have to determine as it could have a significant impact on market pricing.

Economic data being released this week include housing starts, building permits, PMI breakdowns, and existing home sales. US Markets will be closed on Monday in recognition of Martin Luther King Day.

Weekly Market Update 08/01/21

Equity markets saw a strong start to the year globally, with major indexes hitting fresh record highs last week. Democrats secured the Senate majority following a pair of narrow runoff victories in Georgia, potentially paving the way for more fiscal stimulus later in the year to aid the recovery. Democrat control also raises the prospects of higher corporate tax rates but considering the razor-thin majority and current state of the economy, tax reform might not be a priority in 2021.

Despite some shocking scenes of violence in Washington by supporters of President Trump whilst Congress prepared to officially ratify Joe Biden as the 46th president of the US, markets looked through this instead focusing on greater expectations of fiscal stimulus and higher inflation with the hope that 2021 brings a close to the Covid19 pandemic as vaccines are increasingly rolled out.

US equities rose 1.3% over the week, whilst US technology stocks were up 1.4%. European stocks rose 3.0% and UK equities were up a massive 5.6%, despite the UK entering a third national lockdown at the beginning of the week, benefitting from greater exposure to economically sensitive areas such as energy, miners, and financials. Japanese stocks increased by 2.8% and Australian stocks rose 2.6%. Emerging markets were up by 2.4%, with South Korea, a country with high exposure to exporting companies, rising by 9.7% over the week.

As news came through that the Democrats had won the Senate, US Treasuries sold off, with the yield on the 10-year, which moves inversely to price, rising above 1% for the first time in 9 months. US 10-Year Treasuries are currently trading at 1.07%, whilst German Bunds are trading at -0.52% and UK Gilts 0.28%.

Crude oil has continued to steadily climb, with Brent trading at $55.2 a barrel, up over 6% for the week, helping to make energy one of the best performing sectors for the start of the year, having been deeply unloved last year. Copper, considered a good barometer for the health of the global economy, also continued its steady rise, now trading at levels last seen in 2013, above $8,000 a tonne. Copper has had a further boost from expectations that President-elect Joe Biden’s green agenda will increase demand for electric vehicles, requiring large amounts of copper.

However, gold fell almost 3% to $1,890 an ounce, as investors increasingly look towards economic recovery.

The Chinese Renminbi crossed through US$6.5 this week, for the first time since June 2018, erasing most of the losses against the dollar since President Trump began the trade war.

The beginning of the year has seen clear support for so-called ‘value’ stocks, those that are more economically sensitive, although technology has continued to perform, suggesting that greater evidence of the recovery will need to be seen before a more powerful stock rotation is seen. This rotation will depend greatly on the success of Covid19 vaccines for which we remain at the very early stages of the rollout.

The coming week marks the unofficial start to the earnings season, with several national and regional banks reporting quarterly earnings. On the economic front, important data being released include inflation, retail sales and industrial production.

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 22/11/20

Last week saw the equity markets performing a balancing act between incoming positive vaccine news and ever-growing economic restrictions aimed at curbing the recent spike in virus cases and hospitalisations. The rotation out of the technology sector and into more cyclicals stocks continued, as the vaccine developments improved investor sentiment and confidence about next year’s outlook.Rather unexpectedly, the US government on Thursday started to remove some of the emergency support measures previously provided to the Federal Reserve (Fed), reducing the Feds ability to act with immediacy should there be further stresses in financial markets.

US equities over the week fell 0.1%, whilst US technology stocks recorded a gain of 0.6%. European stocks rose 1.0%, as the rotation into more economically sensitive companies continued, albeit at a reduced pace versus last week. UK equities gained 0.9%, with mid cap stocks increasing by 2.0%. The Japanese stock market rose by 1.4%, benefitting from the signing of the Regional Comprehensive Economic Partnership (RCEP), a trade agreement ten years in the making covering fifteen countries in Asia including China, Japan, Australia and Malaysia. Third quarter Japanese GDP also surprised to the upside having increased by 5.0% versus expectations of 4.4%. The Australian stock market rose by 2.0%, whilst the Emerging Markets were up 1.0%.

Despite the positive vaccine news, haven government bonds rallied over the week, responding to rising coronavirus cases and the news that the Fed had had some of its emergency lending measures removed. 10-year US Treasuries are currently yielding 0.84%, German Bunds -0.58% and UK Gilts 0.31%. However, gold sold off slightly, now trading at $1,865 an ounce, whilst the gold mining equity sector lost over 6%.

Copper, considered a good gauge for global GDP growth, carried on its steady ascent, climbing a further 2.5%, having risen by over 50% since its low point in March. Crude oil also rallied over the week, with both Brent and US WTI (West Texas Intermediate) rising by over 4%, trading at $44.5 a barrel and $42.0 respectively.

With news that the Pfizer/BioNTech vaccine has an efficacy rate of 95%, which was followed by Modernas having both an efficacy rate of 94.5% and the ability to be store for 30 days at refrigeration temperature, there are strong hopes for these vaccines to be approved very soon, perhaps even this side of Christmas. Whilst this is good news, it is still unknown how quickly the roll-out programme will take, with the manufacture of these vaccines a likely bottleneck.

Additionally, infectious disease experts tell us that to achieve herd immunity, at least 60% of the population needs to be immune. This would require 63% of the population to be vaccinated assuming an efficacy rate of 95%. Although these vaccines are likely to be authorised for use in a much shorter time period than normal, they still come with known side effects including fever and fatigue. Preliminary surveys suggest a similar proportion of the population will be open to the vaccines as to the flu jab i.e. closer to 51%.

Important data being released this week include personal income and spending breakdowns, FOMC minutes, and building permits.

Market Update 13/11/2020

The S&P 500 closed at a new record high and global equities posted a second week of gains following news of progress in developing a COVID-19 vaccine. Stocks surged on Monday after Pfizer and BioNTech announced that their vaccine had 90% effectiveness in their large study, triggering a wave of hope and optimism that a medical solution will address the health crisis and accelerate the economic recovery.

Cyclical sectors that have been negatively impacted by the pandemic and are more sensitive to the reopening of the economy outperformed last week, while sectors that have benefited from the pandemic underperformed. A similar rotation occurred across asset classes, with small-cap and international stocks outpacing U.S. large-caps. 

US equities had risen 0.8% for the week, whilst US technology stocks, up until now the big beneficiaries of the pandemic, fell 1.6%. Whilst European indices, which are much more cyclical in their makeup, rose 5.1%, with European smaller companies rising a massive 7.1%. UK indices, which have a relatively high weighting to both the financial sector and energy, rose 6.9%, with mid-cap stocks rising 8.8%. Japanese equities rose 2.7%, whilst Australian stocks gained 3.5%. The wider Asia Pacific region, excluding Japan, rose a modest 0.7%, having already been one of the better-performing regions year to date.

The news on the vaccine led Government bonds and gold to sell-off. US Treasury yields, which move inversely to price, rose as high as 0.98%, although they have since retreated and are trading at 0.88%. Both German bund and UK gilt yields also rose over the week, now trading at -0.55% and 0.34% respectively. Whilst gold fell by 3.8%, now trading at $1,878 an ounce. The gold mining sector, which is a geared play on the precious metal, fell by 9.3% over the week, making it one of the hardest-hit sectors.

The headline moves in equity indices masked the huge dispersion in returns at stock level. Rolls-Royce, the manufacturer of jet engines for commercial aeroplanes, rose by 44% on Monday, its biggest ever one day gain. Whilst stocks that have benefitted from work at home lockdowns such as Zoom, the video conferencing technology company and Ocado, the online supermarket, suffered sharp share price falls, both losing close to 15% in value on Monday at their most extreme moment. Some of these moves unwound later in the week, but nonetheless, cyclical stocks remained very much ahead by the end of the week.

Energy stocks were also a big winner over the week as crude oil jumped in price, with Brent crude rising 9.4%, now trading at $43.1 a barrel and US WTI (West Texas Intermediate) $40.6. Similarly, the energy equity sector rose by over 12% for the week.

Important economic data being released this week include retail sales and industrial production on Tuesday, building permits on Wednesday, and the leading index on Friday.

Market Update – 6/11/2020

U.S. equities logged their best weekly gain since early April as investors reacted to the increased possibility of a divided government, including a potential Biden win and continued Republican control in the Senate. However, the market began to price in the scenario of a split government that potentially reduces the likelihood of immediate tax hikes and increased regulations, while not removing the potential for an agreement on some form of fiscal-aid package.

Shares in Europe rallied in sympathy with U.S. equities while also receiving a lift from the generally strong quarterly earnings reported by European corporations and the additional stimulus measures announced in the UK. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 7.02% higher, while Germany’s DAX Index rallied 7.99%, France’s CAC 40 gained 7.98%, and Italy’s FTSE MIB climbed 9.69%. The UK’s FTSE 100 Index advanced 5.97%.

Economic news largely took a back seat over the week, however, Purchasing Managers Indices, considered lead indicators as to the outlook for companies, were unambiguously positive. The US Manufacturing PMI came in at 53.4, slightly higher than forecast, with any number above 50 indicating expansion. Whilst the US Institute for Supply Management Manufacturing index came in at 59.3, smashing expectations, with the new orders subcomponent coming in at 67.9 versus forecasts of 62.

Even in Europe, the Markit Manufacturing PMI came in at 54.8, ahead of forecasts, although the service sector PMI remained below 50, indicating contraction, at 46.9. In the UK, the manufacturing PMI came in at 53.7 and 51.4 for the service sector. This was mirrored in China, with the Caixin composite PMI for both manufacturing and service sector companies coming in at 55.7, higher than the previous month.

On Thursday, faced with the beginning of a second lockdown, the Bank of England announced a massive additional £150 billion quantitative easing program. This was followed up shortly after by an announcement from the UK’s Chancellor, Rishi Sunak, that the government’s furlough scheme would be extended until March of next year.

Despite the US election yet to have been decided, with the possibility that the result gets dragged through the courts, in the coming weeks there may be other news that begins to dominate investors thinking. The announcement of Covid19 vaccine trials should start to come through, with high hopes for a credible breakthrough, which will inevitably take centre stage for markets.

Important economic data being released this upcoming week include the Unemployment Rate, the Fed’s upper bound key interest rate, and various PMI series.

Market Update 26/10/20

Following three consecutive weekly advances, equities declined modestly last week. The news flow was dominated by headlines around the negotiations for another round of fiscal relief from Washington before the election, which is fast approaching. Whilst the imposition of new lockdown restrictions rattled equity markets at the start of the week, in the US and Europe losses were curtailed by better earnings data and economic news.

Economic survey data out of Europe also boosted sentiment later in the week. In Germany, the composite purchasing managersindex rose to 54.5, above expectations of 53.2, driven by optimism from manufacturing. A reading above 50 indicates expansion in economic activity. In addition, despite further local lockdowns, UK retail sales rose 1.5% in September from the previous month, above expectations and up 4.7% on a year-on-year basis and exceeding the forecasted 3.7% rise.

US markets finished down 0.87%, with no clear conclusion this week on negotiations between Democrats and Republicans over a $2 trillion coronavirus aid package. The main European market finished down 1.09%, whilst the UK market finished lower by 0.29%, hindered by a stronger Pound Sterling as UK large caps derive a large portion of their revenues from overseas.

In Asia, the Japanese market finished higher by 0.47%, whilst the Hong Kong Index was the standout performer this week rising by 2.2%. Robust GDP (Gross domestic product) data out of China helped the region as the country reported Q3 GDP growth at 4.9%. Industrial growth powered the countrys recovery from the coronavirus pandemic. Industrial production in China leapt 6.9% in September, its highest level this year and the same rate as of December before the virus outbreak.

US bond prices have come under pressure this week, as polling forecasting, a democratic win for the Presidential election has increased the expectations of even further fiscal stimulus. The prospect of more fiscal stimulus would improve the US economic outlook and raises the chances of higher inflation, which would send yields higher. Bond yields, which move inversely to their bond price, rose for both the 10-year and 30-year US treasuries, by 11 and 15 basis points respectively over the week. The 10-year US Treasury is now yielding at 0.85% whilst the 30-year treasury is yielding at 1.67%, a four-month high.

The UK Pound sterling is on course for its biggest weekly gain since March, up 1.18% to $1.306 The currency was buoyed by positive statements from both sides of the Brexit negotiating table. On Wednesday EU chief negotiator Michel Barnier commented that a trade deal between the UK and the EU bloc was within reach” if both sides were prepared to compromise. A response from the UK government indicating preparation for intensive talks” aided the currencys rally.

Brent crude prices finished the week slightly lower, by 0.68% to trade at $42.64 per barrel, on the back of concerns over weaker demand given the news of further economic shutdowns. Elsewhere, copper prices made the headlines as the industrial metal hit $7,000 a tonne for the first time since 2018. Stronger industrial demand from China and supply interruptions in Chile, the worlds largest copper producer, helped boost the price.

Market Update 19/10/2020

Equity markets in Europe lost ground this week as governments increasingly tightened social restrictions in a bid to contain a surge in coronavirus cases. China, which has effectively controlled the virus outbreak, with life increasingly returning to normal, had a very solid week for domestic ‘A’ shares.  The latest data on imports into China for September exceeded expectations, rising by the fastest rate this year, as the economic recovery has led to a rise in demand for overseas goods.

US Equity markets however finished slightly higher as investors continue to hope for a fiscal stimulus package. On the vaccine front, some trials have been paused due to health concerns, and Pfizer has filed an emergency-use plan for the end of November. Polls were also showing a clear lead for Joe Biden over President Trump.  Although corporate tax increases are a threat under Joe Biden, it is thought that this is unlikely until 2022 or 2023 at the earliest, whilst fiscal stimulus is expected to increase significantly through infrastructure expenditure.

Boris Johnson warned the UK to prepare for a ‘no deal’ Brexit following little progress in negotiations with the EU.  Sterling has not moved materially in response to the statement, whilst markets continue to be uncertain as to whether this is posturing or a genuine threat.  From an equity perspective, UK equities have traded at a discount to international market ever since the vote to leave back in 2016, with most of the pain expected to be felt in Sterling should a no-deal come to pass.

US equities are up 0.2%, whilst US technology stocks rallied by 1.2%.  European equities are down by 1.1%, but rallying hard after the selloff on Thursday, on the back of positive results from companies and brighter forward guidance, despite the tighter restrictions being introduced across the continent.  UK equities lost 1.5% over the week, as Prime Minister Boris Johnson introduced a three-tier coronavirus alert system, as social restrictions increasingly spread across the country in response to a surge in the virus.  The Japanese stock market fell 1.8%, as big exporting stocks reacted to the increase in coronavirus cases across Europe and the US.  The Australian market rose 1.2% over the week after the Reserve Bank of Australia hinted at an interest rate cut.  Emerging markets fell 0.2%, however, within that, Chinese domestic ‘A’ shares rose 2.0% as the economic recovery continued.

Developed market government bond yields, which move inversely to price, fell this week on the worsening outlook for virus cases.  The 10-year yield on US Treasuries fell to 0.73%, German Bunds fell to minus 0.63% and UK Gilts 0.16%. Similarly, crude oil, copper and iron ore prices all fell over the week on the same concerns.

Australian markets rallied this week after the Reserve Bank of Australia hinted at a potential interest rate cut to provide further monetary easing support for the economy. However, gains were diminished on the last trading day, following worsening global sentiment over new virus cases in both Europe and the US. Most sectors finished in negative territory on Friday alone, with notable laggards including mining which finished in the red as iron ore prices declined on oversupply concerns. Rio Tinto dropped by almost 1% after its September update reported lower production and sales of iron ore.

Market Update 09/10/20

European equities climbed last week, despite disappointing data pointing to a slowdown in the economic recovery and escalating coronavirus cases putting ever greater pressure on politicians to veer towards lockdowns. Positivity in Europe was in part explained by companies providing improving guidance as to future earnings, with the drug company Novo Nordisk, jewellery producer Pandora and Zalando, the online clothing retailer all raising their full-year forecasts. Whilst British Land, the UK property firm, reinstated their dividend.

US Equities made further headway this week, with the S&P 500 recording the best weekly gain since early July, while long-term government yields rose to a four-month high. The driver behind the equity-market strength was the anticipation that another stimulus package will eventually be passed despite the shaky negotiations so far. The White House increased its fiscal stimulus offer to $1.8 trillion from $1.6 trillion, which partly bridges the gap but is still short of the $2.2 trillion package the House has already approved

US equities rose 2.9% over the week, whilst US technology stocks increased by 3.1%. European equities were up by 1.8%, with UK equities rising by 2.2%. More domestically focused companies in Europe and the UK both made stronger gains, with European smaller companies having increased by 3.0% and UK mid-caps 3.6%. Japanese stocks gained 2.4%, whilst Australian stocks rose a massive 5.4%. Global emerging markets rose by 3.3%, whilst Latin America stocks were up 4.6%, helped by a rally in the oil price.

US Treasury yields rose over the week (yields move inversely to price), as markets began to price in a Democratic victory, with the 10-year yield touching 0.79%, before settling down at 0.77%. German bund yields, however, remained anchored at minus 0.54%, not helped by the slowing economic recovery in Europe. UK gilts increased to 0.3%, before heading down towards 0.27% as the economic data releases on Friday disappointed markets.

Crude oil rose over the week, with Brent crude rising 9.6%, now trading at $43.0 per barrel and US WTI (West Texas Intermediate) climbed 10.3%, trading at $40.9. The increase in price was triggered by the threat of a strike in Norway that could cut output from Europe’s biggest producer by up to 25%, and Hurricane Delta which led to a 95% cut in supply from the Gulf of Mexico. The copper price, considered by many as a barometer to the health of global growth, rose by 3.1%, now having reversed most of its recent losses.

Disappointing data out of the Eurozone suggested that a ‘V’ shaped recovery has been harder to come by versus other parts of the world. French industrial production for August disappointed, having increased by 1.3% versus forecasts of 1.7%, following the release of the latest PMI (purchasing managers index) data on Monday suggesting continued contraction within the services sector. Similarly, industrial production in Germany for August came in at minus 0.2% versus forecasts of plus 1.5%. However, new factory orders beat expectations, increasing by 4.5% versus forecasts of 2.8%, potentially setting up German manufacturing for a strong fourth quarter. The UK also disappointed on Friday, with GDP growing by 2.1% for the month of August, versus projections of 4.6%.

Whilst last week was the Australian equity market’s worst week since April, this week was the reverse, with the market posting strong gains. Australian markets were particularly supported by government measures to help boost the economy. Aftermarket hours on Tuesday, the government announced personal tax cuts worth AUD $17.8 billion and a further AUD $5.2 billion in new programmes to boost employment. The market reacted positively and consequently over the week all sectors posted positive gains. However, the most notable performers were energy stocks, which rose by approximately 9%.

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