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Global Markets Weekly Market Review – Week 33, 2020

Major global indices continued to have mixed activities as results and central bank actions streamed in. Overall markets were eager to understand the outcome of a stimulus package bill that the United States law makers have been discussing over the past two weeks with no definite way forward being agreed by the congress.

United States

U.S markets registered gains for the week, helping the S&P 500 Index to briefly move within roughly 0.2% of its February all-time high. Slower-growing value stocks outperformed for the second consecutive week, suggesting to some that a market rotation was underway after the dramatic out performance of large-cap growth shares in recent months. Industrials shares outperformed within the S&P 500, helped by strong gains in package delivery firms FedEx and United Parcel Service.

Optimism about further fiscal stimulus may have also helped the week’s gains, but signals were conflicting here as well. Over the previous weekend, President Donald Trump signed executive actions extending supplemental unemployment benefits, halting evictions, delaying student loan payments, and cutting payroll taxes.

Europe

Equities in Europe ended the week higher on signs of progress in developing a vaccine against COVID‑19, the disease caused by the coronavirus, and hopes that major economies could pursue additional stimulus measures to bolster a nascent recovery. The strong rally at the start of the week stalled on rising fears of a potential second wave of coronavirus infections in Europe, a risk that prompted the UK to impose more travel restrictions. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 1.24% higher, Germany’s DAX Index rose 1.79%, France’s CAC-40 ticked up 1.50%, and Italy’s FTSE MIB gained 2.62%. The UK’s FTSE 100 Index climbed 0.96%.

The UK fell into a recession in the second quarter, when the economy shrank by a record 20.4% sequentially. Consumption, government spending, exports, imports, and business investment declined significantly. However, there were signs of a recovery in June, when gross domestic product (GDP) rose 8.7% from May.

Asia

Mainland Chinese stock markets ended the week broadly unchanged as investors stayed on the sidelines ahead of U.S.-China trade talks on August 15. Many analysts see the talks—which are intended to review the progress of the phase one trade deal over the past six months—as a potential risk to markets, though President Trump is believed to want the deal upheld ahead of the November presidential election. However, U.S. import targets for 2020, to which China has committed, already appear out of reach.

Japan’s GDP growth is expected to contract more than 7% (26.6% annualized) in the three months ended June 30 versus the prior quarter, according to a survey of economists polled by the Japan Center for Economic Research.

Other Key Markets

  • Brazil – Stocks in Brazil, as measured by the Bovespa Index, returned about -1.5%. During the week, Rodrigo Maia (the president of the Chamber of Deputies) and Economy Minister Paulo Guedes held a joint press conference in which they stressed the need for the government to maintain fiscal responsibility and respect the country’s spending cap in 2021, which is mandated by a constitutional amendment.
  • Turkey – Turkish stocks, as measured by the BIST-100 Index, returned about 2.2%. Shares rose, recouping some of their recent losses, but the lira remained under pressure, as investors responded to the central bank’s recent policy adjustments. The previous week, the central bank announced that it was phasing out the targeted liquidity facilities that were established in March to stimulate credit growth. These facilities achieved this via repo and swap auctions with interest rates that recently had been below the benchmark one-week repo rate, currently 8.25%.
Sources: Barrons (Dow Jones & Company), Bloomberg Quint, The Economist Europe & Brazil Business Post, Edward Jones Financial Reports.