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Global Markets Weekly Market Review – Week 38, 2020

Global Equities were mixed for the week, merger news and some renewed COVID-19 vaccine optimism seemingly offset by worries that the U.S Federal Reserve’s monetary policy was becoming less effective in supporting the global economic recovery.

United States

The Fed’s two-day policy meeting, which concluded Wednesday, seemed to weigh on sentiment and may have drained the week’s gains. The post-meeting statement and economic projections revealed that policymakers expect official short-term rates to remain near 0% through 2023, while they tempered their expectations for the size of the economic contraction in 2020 from 6.5% to 3.7%. Lingering fears that the Fed’s extreme monetary accommodation had reached the limits of its influence appeared to weigh on the market. Indeed, Fed Chair Jerome Powell repeated his call for a stronger fiscal response to help the recovery.

The week’s economic data came in mixed. Core retail sales (which exclude purchases at gas stations, auto dealers, building supply stores, and food services suppliers) fell 0.1% in August, while July’s robust gain was revised lower (to 0.9% from 1.4%)—offering evidence to some that the expiration of extended unemployment benefits was threatening the recovery. Weekly continuing and initial jobless claims hit new pandemic lows but remained elevated, at 12.6 million and 860,000, respectively. Overall housing starts in August missed expectations, but starts of single-family homes remained robust, and building permit data were encouraging.

Index Friday’s Close Week’s Change % Change YTD
DJIA 27,657.42 -8.22 -3.09%
S&P 500 3,319.47 -21.50 2.75%
Nasdaq Composite 10,793.28 -60.26 20.29%
S&P MidCap 400 1,870.62 15.33 -9.33%
Russell 2000 1,536.78 39.01 -7.89%

Europe 

The pan-European STOXX Europe 600 Index overcame concerns about a resurgence in the number of coronavirus cases to eke out a 0.22% gain. However, the major European indexes lost ground: Germany’s Xetra DAX Index slipped 0.66%, Italy’s FTSE MIB tumbled 1.49%, France’s CAC 40 pulled back 1.11%, and the UK’s FTSE 100 Index gave up 0.42%.

The STOXX Europe 50, STOXX Europe 600, FTSE 100, DAX, and Spain’s IBEX were set to rebalance on Friday, with additions and deletions going into effect after the European close.

European Commission President Ursula von der Leyen said in her annual State of the Union address that the European Union should aim to cut greenhouse gas emissions by 55% from 1990 levels during this decade—more than the current target of a 40% reduction. She said 30% of the EUR 750 billion recovery package should be raised through green bonds, and 37% should be devoted to helping industries decarbonize.

Asia

Japanese stocks posted mixed returns for the week. The Nikkei 225 Stock Average declined 46 points (0.2%) and closed at 23,360.30. The market benchmark has declined (1.3%) for the year-to-date period. The large-cap TOPIX Index and the TOPIX Small Index, broader measures of Japanese stock market performance, recorded gains. The yen strengthened for the week and traded below JPY 105 per U.S. dollar on Friday.

Yoshihide Suga was voted in as Japan’s prime minister by both houses of parliament on Wednesday, September 16. He replaces Shinzo Abe, who is leaving his post due to illness. Suga, who is 71 years old, will fill the remainder of Abe’s term, until September 2021.

Chinese stocks rallied as a batch of indicators highlighted the country’s economic momentum, and investors hoped for more fiscal stimulus to boost the coronavirus-hit economy. The benchmark Shanghai Composite Index and blue chip CSI 300 Index each rose 2.4% for the week after two straight weeks of losses. In fixed income markets, the yield on China’s sovereign 10-year bond was broadly flat for the week as of Friday morning despite signs of the improving economy. The yuan strengthened against the U.S. dollar for the eighth consecutive week.

Other Key Markets

South Africa – South African stocks, as measured by the FTSE/JSE All Share Index, returned -2.5% through the close of business on Thursday. Equity investors were disappointed that the central bank chose not to reduce interest rates. On Thursday, the South African Reserve Bank (SARB) decided to leave its benchmark lending rate, the repurchase rate, at 3.50%. The SARB’s last rate cut was on July 24, when it reduced the repurchase rate by 25 basis points, from 3.75% to 3.50%.

Brazil – Brazilian stocks, as measured by the Bovespa Index, were little changed for the week. On Wednesday, Brazil’s central bank decided to keep its Selic benchmark lending rate at 2%, which was generally expected. Also, forward guidance regarding interest rates and inflation were the same as they were following policymakers’ August 4–5 meeting. The central bank does not intend to raise rates until inflation projections and expectations are closer to the 3.75% inflation target—assuming no change in current fiscal policies that leads to a breach of the statutory spending cap.