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Global Markets Weekly Market Review – Week 37, 2020

Global Stocks declined for the second straight week, as technology stocks in U.S and Asia experienced their worst pullback since March. There was no single catalyst for the move during the week but the effect of the decision by the United States Federal Reserve to decline the stimulus package.

United States

U.S Stocks pulled back further from recent highs in a shortened but highly volatile trading week. The technology-heavy Nasdaq Composite Index fared worst and ended the week in correction territory, or down more than 10% from the all-time high it reached on September 2. Tech shares were also among the weakest within the S&P 500 Index, while energy stocks suffered as domestic oil prices sank below USD 40 per barrel for the first time since July, in part because of Saudi Arabia cutting oil prices for some customers. The small materials sector outperformed, and industrials shares also proved resilient. The market was closed Monday in observance of Labor Day.

The week’s economic calendar sent conflicting signals. On Thursday, the Labor Department reported that initial jobless claims remained steady at 884,000 for the week ended September 5, defying consensus expectations for a decline. Continuing claims also rose unexpectedly, moving higher for the first time since mid-July. On the bright side, July job openings beat expectations, and early reports suggested healthy retail sales over the holiday weekend. A gauge of small business optimism also rose unexpectedly in August after July’s drop. Inflation data released Friday also surprised on the upside, with both core (less food and energy costs) and headline consumer prices rising 0.4% from July to August. A jump in used car prices—the largest in over five decades—was partly responsible for the uptick as Americans shunned public transportation and air travel.

Index Friday’s Close Week’s Change % Change YTD
DJIA 27,665.64 -467.67 -3.06%
S&P 500 3,340.97 -85.99 3.41%
Nasdaq Composite 10,853.54 -459.59 20.96%
S&P MidCap 400 1,855.29 -42.81 -10.07%
Russell 2000 1,497.77 -38.35 -10.23%

Europe

Stocks in Europe rose on the continuing economic recovery, shaking off disappointment that the European Central Bank (ECB) did not announce additional stimulus, as well as renewed fears of a hard Brexit. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 1.67% higher. Germany’s Xetra DAX Index rose 2.80%, France’s CAC 40 added 1.39%, and Italy’s FTSE MIB advanced 2.21%. The UK’s FTSE 100 Index gained 4.02%, which benefited from weakness in the British pound. UK stocks tend to gain when the pound falls because many companies in the index are multinationals that generate meaningful overseas revenues.

The ECB left its policy measures unchanged, as expected. ECB President Christine Lagarde said after the meeting that economic data since July suggested a strong rebound in activity. Lagarde asserted that the balance of risks to the euro area’s growth outlook remains to the downside, reflecting the pandemic’s uncertain economic and financial implications. In response to the euro’s appreciation, Lagarde indicated that the central bank’s governing council would “carefully monitor” exchange rate movements and their implications. She reiterated that ample monetary stimulus remains necessary to support the economic recovery and to safeguard medium-term price stability.

Asia

After some seesawing, Japanese stocks ended the week with gains. The Nikkei 225 Stock Average advanced 201 points (0.9%) and closed at 23,406.49. The market benchmark has declined 1.1% for the year-to-date period. The large-cap TOPIX Index and the TOPIX Small Index, broader measures of Japanese stock market performance, recorded similar-sized weekly gains. The yen was relatively unchanged for the week and traded near JPY 106 per U.S. dollar on Friday. Japan’s gross domestic product (GDP) growth was revised to an annualized pace of -28.1% in the first fiscal quarter ended June 30, 2020. The contraction was steeper than the first estimate of -27.8% but not as severe as economists’ consensus estimates of -28.5%.

Mainland Chinese A-shares shed roughly 3.0%, taking their cue from the U.S. sell-off. In addition to the U.S. tech stock downturn, news that the Trump administration was considering adding Semiconductor Manufacturing International Corporation (SMIC), China’s top chip foundry, to a list of U.S.-sanctioned companies dealt a blow to investor sentiment. Shares of many Chinese technology companies fell on the news, reflecting SMIC’s importance as a key semiconductor supplier to the domestic market and the company’s close ties to Beijing and the defense industry.

Other Key Markets

  • South Africa – Stocks, as measured by the FTSE/JSE All Share Index, returned about 4.1% for the week. The market is, however, among the worst-performing emerging markets in the year-to-date period through the end of August. As measured by MSCI, the South African equity market is down more than 20% in U.S. dollar terms through August 31; much of that reflects the rand falling more than 17% versus the greenback.
  • Turkey – Turkey’s benchmark stock index went up 0.33% to 1,102.70 points at close on Friday. After starting the last transaction day of the week at 1,100.93 points, Borsa Istanbul’s BIST 100 index earned 3.64 points from Thursday’s close of 1,099.06 points. The price of one ounce of gold was $1,946.50 by market close, down from $1,949.50 at the previous close, according to data from Borsa Istanbul’s Precious Metals and Diamond Markets.
Sources: Barrons (Dow Jones & Company), Bloomberg Quint, The Economist Europe, African Stock Exchanges, Edward Jones Financial Reports