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The Trading Room: Weekly Market Review – Week 25, 2020

Global stock markets climbed as investors grew more confident in the economic rebound and discounted the likelihood of further business closures due to increasing numbers of coronavirus cases. Equities jumped worldwide, primarily in response to talk of more US fiscal stimulus and again after the Federal Reserve (the Fed) followed through on an earlier pledge to begin buying a broad portfolio of US corporate bonds. Sentiment got a positive boost from surprisingly strong economic data in the US and Europe, as well as reports that China plans to accelerate purchases of American farm goods to comply with the phase one trade deal. Improved investor confidence was also reflected in higher oil prices.

United States

Stocks recorded gains and erased part of the previous week’s steep declines. The technology-heavy Nasdaq Composite Index fared best and briefly moved close to the all-time intraday high it established on June 10. Energy stocks led the rebound, helped by signs that major oil-exporting nations were adhering to previously agreed production cuts as well as optimism for increased global demand. Health care and materials stocks also outperformed, while Boeing and airline stocks were especially strong early in the week, boosted by reports of a resurgence in air travel. The small real estate and utilities sectors lagged.

Investment-grade corporate bond credit spreads—the additional yield offered over Treasuries, and an inverse measure of relative appeal—moved tighter after the Fed announced that it will begin buying individual corporate bonds to supplement its purchases of exchange-traded funds. However, our traders noted that spreads moved wider as the week progressed amid increased selling to fund purchases in the primary market. The volume of new deals was well above expectations.

Europe

Equities in Europe ended the week higher, supported by stimulus efforts and the reopening of key economies. However, a resurgence of COVID-19 cases in the U.S. and China cast doubt on a quick recovery and hindered the advance. The pan-European STOXX Europe 600 Index ended the week 3.31% higher, while Germany’s Xetra DAX Index climbed 3.51%, France’s CAC 40 Index added 3.23%, and Italy’s FTSE MIB Index advanced 3.99%. The UK’s FTSE 100 Index rose 2.93%.

UK inflation slowed to a four-year low of 0.5% in May, from 0.8% in April, as crude oil prices fell. The number of people claiming out-of-work benefits in the UK climbed by 528,000 in May, to 2.8 million. The number of payroll employees fell by 600,000 between March and May as employers cut jobs; the number of self-employed dropped 131,000 in the three months ended April 30, a record decline of almost 9%.

Asia

Stocks in Japan produced small gains for the week. The Nikkei 225 Stock Average advanced 173.31 points (0.78%) and closed at 22,478.79. The widely watched benchmark has made up much of the ground lost in February and March but remained down about 5% for the year-to-date period. The TOPIX Small Index was up 1.6% for the week, outperforming both the Nikkei and the large-cap TOPIX Index.

China’s domestic large-cap index, the CSI 300 Index, gained 2.4% for the week, outpacing the 1.6% advance in the country’s benchmark Shanghai Composite Index. The gains in Chinese stocks came despite a reported surge in new COVID-19 cases in Beijing over the June 13 weekend, highlighting the risk of a second wave of infections. In response, Beijing returned to tight movement restrictions, though not a complete lock-down, after the new cases were traced to a wholesale food market. Despite fears of another wave, public health experts believe that China will be able to better manage a resurgence in infections given the country’s extensive experience in battling the coronavirus.

Kenya

Equity turnover on the Nairobi Securities Exchange turned lower with 133 million shares valued at Kes.3.2 billion against 145 million shares valued at Kes.3.3 billion transacted the previous week.

The benchmark NSE All Share Index (NASI) gained 1.70 points during the week to close at 144.58, representing a 1-week gain of 1.19%, a 4-week gain of 3.32%, but an overall year-to-date loss of 13.12%. The NSE20 share index on the other hand was down 42.32 points to close the week at 1,969.45 points; this represented a week’s loss of 2.1% and a year to date loss of 25.8% while the NSE25 share index recorded gains of 46.37 points or 1.41% to close the week at 3,332.27 points an equivalent of 18.74% year to date loss.

Safaricom Plc recorded a 1.48% share price appreciation to Kes.30.90, up from Kes.30.45 registered the previous week with shares worth Kes.1.4 billion transacted; this represented 46.47% of the week’s traded value while the Banking Sector had shares worth Kes.1.1 billion transacted which accounted for 37.07% of the week’s traded value.

On Friday, Standard Chartered issued a notice declaring a final dividend of Kes 7.50, down from the initial Kes 15.00, and a bonus issue in the proportion of 1:10, to shareholders registered at the close of business on 27 April 2020. A virtual AGM is scheduled for 24 July 2020. As at 1Q20, StanChart’s Adjusted Tier 1 CAR stood at 15.03% – 4.53% above the statutory minimum. With the halving of the final dividend to KES 2.6bn, the lender’s Tier 1 CAR will increase by approximately 107bps to 16.10% by our estimation. This will further boost its capacity to withstand shocks from the pandemic. The counter inched 0.3% lower to KES 167.50.

NSE20 One Year Chart Performance

The Derivatives market of the Nairobi Securities Exchange (NEXT) closed the week with a total of 65 contracts valued at Kes.1.8 million concluded on the exchange. The June 18th contracts which were active on the market closed out on expiry.

Secondary trading on the bond Market at the Nairobi Securities Exchange registered modest growth in activity with bonds worth Kes 11.9  billion transacted this week as compared to the Kes.11.7 billion registered on the previous trading session.