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Global Markets Weekly Market Review – Week 32, 2020

Global Markets were mixed this week with the west taking a greater rise while the east took a beating as United States President Donald Trump issued a directive that would see U.S companies ban popular video app TikTok.

Business activity for the services sectors expanded, and the U.S. economy added 1.76 million jobs in July, beating estimates. The continuing, yet moderating, gains in employment show that the recovery in the labor market and the economy is on track, but there is still a long road ahead.

United States

Wall Street recorded solid gains for the week, pushing the technology-heavy Nasdaq Composite Index to new highs against last week’s figures and lifting the S&P 500 to within roughly 1.2% of its February record peak. The small-cap Russell 2000 Index outperformed by a wide margin, helping it recover some of its lost ground for the year to date. Industrials shares benefited from hopes for new aid to airlines, while health care stocks lagged. It was the last major week of the earnings season, with 132 S&P 500 companies scheduled to report second-quarter results, according to Refinitiv.

The yield on the benchmark 10-year Treasury note touched a new five-month low on Thursday before increasing on Friday following the jobs report from the Labor Department, leaving it modestly higher for the week. (Bond prices and yields move in opposite directions.) Driven by strong demand, the broad municipal market posted gains and outperformed Treasuries by a wide margin through most of the week. With short-term yields near all-time lows, many investors continued to look for opportunities in longer-maturity municipals. Once again, taxable deals composed a meaningful share of overall municipal issuance, headlined by Hawaii’s sale of nearly USD 1 billion in taxable general obligation bonds.

 

Index

Friday’s Close Week’s Change % Change YTD
DJIA 27,433.48 1005.16 -3.87%
S&P 500 3,351.28 80.16 3.73%
Nasdaq Composite 11,010.98 265.71 22.72%
S&P MidCap 400 1,938.53 74.83 -6.03%
Russell 2000 1,569.18 88.51 -5.95%

 

Europe

European shares rose on signs that an economic recovery may be gaining traction and hopes for more U.S. stimulus. However, escalating tensions between the U.S. and China and fears that Europe could suffer a resurgence of coronavirus cases curbed equity markets’ gains. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 2.03% higher, Germany’s Xetra DAX Index rose 2.94%, France’s CAC 40 gained 2.21%, and Italy’s FTSE MIB climbed 2.22%. The UK’s FTSE 100 Index advanced 2.28%.

The Bank of England (BoE) forecast that the UK economy would contract 9.5% this year, less than the 14% projected in May. The BoE also predicted a slower recovery, with the economy clawing back its losses by the end, rather than by the middle, of 2021. The report was published alongside its latest policy decision, which, as expected, held interest rates at 0.1% and the bond-buying program at GBP 745 billion. BoE Governor Andrew Bailey reiterated that negative interest rates were part of the bank’s toolkit but there were no plans to use them.

Asia

Japan Following a steep decline at the end of July, Japanese stocks rallied in the first week of August. The Nikkei 225 Stock Average advanced 620 points (2.9%) and closed at 22,329.94. The widely watched market benchmark has returned -5.6% for the year-to-date period. The large-cap TOPIX Index and the TOPIX Small Index, broader measures of Japanese stock market performance, also posted strong gains. The yen was little changed over the week and remained below JPY 106 per U.S. dollar.

China – Mainland Chinese markets rallied after data lifted confidence in the economic recovery. The large-cap CSI 300 Index and benchmark Shanghai Composite Index each posted solid gains, even after declining on Friday on news that the Trump administration tightened restrictions on Chinese social media networks TikTok and WeChat in the U.S. In another sign of the growing tech rift between the U.S. and China, San Jose-based video conferencing company Zoom, which gained popularity during the pandemic, said that it would halt direct sales to China and only provide video conferencing services through third-party partners.

Other Key Markets

  • Turkish stocks, as measured by the BIST-100 Index, returned -5.9%. Shares extended the previous week’s weakness, and the lira fell sharply, as overnight lending rates in Turkey’s financial system spiked amid continuing concerns about the central bank’s depletion of its foreign exchange reserves and, thus, its ability to defend the lira in global currency markets. Long-term sovereign bond yields also climbed due to the inflationary implications of Turkish currency weakness (e.g., higher import prices).
  • Stocks in Brazil, as measured by the Bovespa Index, returned about -0.1%. On Wednesday, the central bank reduced its benchmark lending rate, the Selic rate, from 2.25% to 2.00%. This reduction, which was widely expected, brings the Selic rate to a new all-time low.

 

Sources: Barrons (Dow Jones & Company), New York Times, The Economist & Brazil Business Post