Global Markets Weekly Market Review – Week 35, 2020
Global stocks ended the week mixed, on the present prevailing macros. The MSCI’s benchmark for global equity markets rose by 0.43% to 585.73 after earlier setting a new intraday high, while stocks on Wall Street also rallied, with technology leading the way and the Dow closed to an all-time high.
U.S Stocks continued to grind higher on largely positive news flow about potential vaccines and treatments for COVID-19, the disease caused by the coronavirus, generating solid returns for the week. Companies that would benefit most from a full reopening of the economy, such as airlines and aircraft part manufacturers, enjoyed strong support at times. However, higher-valuation growth stocks outperformed lower-priced value companies, extending the 2020 trend. Large-cap companies easily outpaced small-caps, as large information technology firms continued to drive the market’s upward momentum.
On Thursday, Federal Reserve Chair Jerome Powell delivered (virtually) a long-anticipated speech at the Kansas City Fed’s Economic Policy Symposium, which is typically held in Jackson Hole, Wyoming, announcing the results of the central bank’s review of its monetary policy framework. Powell said that the Fed will adjust its inflation targeting to allow overshoots of its 2% inflation goal to offset undershoots of the target. This will effectively allow the Fed to keep rates at the current near-zero level for a longer period without raising them to preempt inflation.
|Index||Friday’s Close||Week’s Change||% Change YTD|
|S&P MidCap 400||1,946.51||36.22||-5.65%|
In Europe’s trading session, shares rose on further economic stimulus in France and Germany, a recommitment by the U.S. and China to their partial trade deal, and signs of progress in the development of treatments for COVID-19. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 1.02% higher, while Germany’s Xetra DAX Index climbed 2.10%, France’s CAC 40 added 2.18%, and Italy’s FTSE MIB rose 0.74%. The UK’s FTSE 100 Index slipped 0.6%.
Germany’s ruling coalition extended a program to help keep workers on companies’ books and increased its funding by EUR 10 billion. Additional measures would allow struggling companies to delay insolvency filings until year-end. The German economy contracted at a record rate in the second quarter, although the initial estimate of a quarterly decline of 10.1% in gross domestic product was revised up to a 9.7% contraction.
Japanese stocks were largely flat for the week as news of Prime Minister Shinzo Abe’s resignation on Friday helped offset earlier gains. The Nikkei 225 Stock Average declined 37 points (-0.16%) and closed at 22,882.65. The benchmark has stalled over the past two weeks after posting gains in the first half of August. The large-cap TOPIX Index finished with slightly positive returns, while the TOPIX Small Index was modestly lower.
Mainland Chinese stock markets rose for the week. The blue chip CSI 300 Index gained 2.7% and the benchmark Shanghai Composite Index, which gives a significantly larger weighting to state-owned enterprises, added 0.7%. For the year to date, Chinese yuan-denominated A shares have gained about 10% compared with a roughly 8.5% gain for the S&P 500 Index, making them among the best performers in global stock markets.
Other Key Markets
- Mexico – Mexico reported that its year-over-year reading for inflation for the first half of August was 3.99%. This was slightly higher than expected and at the top of the central bank’s 2% to 4% inflation target range. According to Gifford, the underlying data confirm the presence of recent supply-side pressures, particularly related to food. While he believes that these pressures will ultimately fade, Gifford highlights that inflation inertia has become a sticking point for the Mexican central bank (Banxico) in recent weeks. Mexican stocks, as measured by the IPC Index, returned about -0.8%.
- Chile – Shares in Chile sagged amid news that credit rating agency Moody’s changed its outlook for Chilean sovereign debt from stable to negative while reiterating its A1 investment-grade rating. Although Emerging Markets Sovereign Analysts said the decision was not unexpected, the Moody’s analysis highlights several challenges on the horizon. This includes rising debt burdens due to fiscal slippage as well as political and social uncertainty related to the pandemic and the upcoming constitutional referendum in October. On the plus side, Moody’s acknowledged the strong starting point for debt metrics and fiscal buffers even if they are weakening. Chilean stocks, as measured by the IPSA Index, returned about -3.3%.
Sources: Barrons (Dow Jones & Company), Bloomberg Quint, The Economist Europe & Brazil Business Post, Edward Jones Financial Reports