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Global Markets Weekly Market Review – Week 39, 2020

Global markets fell during the week, with the U.S markets marking the longest weekly slide since 2019, as investors continue to digest news that U.S./China trade tensions are rising, a coronavirus vaccine won’t be widely available until April of 2021, jobs data came out worse than expected, and expectations are fading that a new fiscal stimulus package will be passed.

United States

The large-cap benchmarks endured their fourth consecutive week of declines, marking the longest such stretch in over a year and sending the S&P 500 Index briefly into correction territory, or down more than 10% from its recent peak. Consumer discretionary shares outperformed, helped by strength in Nike following its report of a rebound in summer sales. Technology stocks also proved resilient, helping the tech-heavy Nasdaq Composite Index record a gain for the week. Energy stocks suffered the biggest declines in the S&P 500 in response to falling oil and natural gas prices, while declines in regional bank stocks due to concerns over depressed lending margins put pressure on financials shares.

The yield on the benchmark 10-year U.S. Treasury note moved slightly lower for the week. (Bond prices and yields move in opposite directions.) Amid elevated levels of new issuance, the broad municipal market was little changed through most of the week and underperformed Treasuries.

Index Friday’s Close Week’s Change % Change YTD
DJIA 27,173.96 -483.46 -4.78%
S&P 500 3,298.46 -21.01 2.09%
Nasdaq Composite 10,913.56 120.28 21.63%
S&P MidCap 400 1,815.67 -54.95 -11.99%
Russell 2000 1,474.04 -62.74 -11.65%
Europe
Shares in Europe tumbled as a surge in coronavirus infections prompted some countries to implement stricter containment measures. Signs that the economic recovery may be stalling also weighed on stocks. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 3.60% lower, while Germany’s DAX Index dropped 4.93%, France’s CAC 40 fell 4.99%, and Italy’s FTSE MIB slid 4.23%. The UK’s FTSE 100 Index lost 2.74%.
BoE Governor Andrew Bailey said at an online talk hosted by the British Chambers of Commerce that the central bank will do everything possible to support the economy, after noting that the resurgence of the coronavirus “does reinforce the downside risk we see in our [economic] forecast.” He confirmed that policymakers had “looked hard” at the central bank’s capacity to cut interest rates and at the potential for negative rates. However, he said that these considerations did not imply that a move to negative rates was imminent.
Asia
Stocks in Japan declined in the holiday-shortened trading week. The Japanese markets were closed on Monday and Tuesday for Respect for the Aged Day and Autumnal Equinox Day, respectively. The Nikkei 225 Stock Average declined 156 points (0.7%) and closed at 23,204.62. The market benchmark has declined (1.9%) for the year-to-date period. The large-cap TOPIX Index and the TOPIX Small Index, broader measures of Japanese stock market performance, also recorded losses. The yen stayed in a tight range for the week and traded above JPY 105 per U.S. dollar on Friday.
Stocks in China fell in tandem with the global correction, with the benchmark Shanghai Composite Index and CSI 300 Index dropping 3.6% and 3.5%, respectively, in their biggest weekly loss since mid-July. In fixed income markets, the yield on China’s sovereign 10-year bond shed three basis points to 3.13%. China’s central bank left its loan prime rate, the reference rate for new bank loans, on hold for the fifth straight month, as expected. The yuan weakened to CNY 6.82 per U.S. dollar in a risk-off week characterized by broad dollar strength.
Other Key Markets.
Turkey – On Thursday, Turkey’s central bank surprised investors with a 200-basis-point increase in its benchmark lending rate, the one-week repo auction rate, from 8.25% to 10.25%. This is the central bank’s first interest rate increase in about two years. The central bank also made a similar move to increase its overnight lending rate, from 9.75% to 11.75%, and its late liquidity window facility rate, from 11.25% to 13.25%
Brazil – Stocks in Brazil, as measured by the Bovespa Index, returned about -1.4%. During the week, Brazil reported a solid current account surplus for the month of August. Over the last three months, T. Rowe Price sovereign analyst Richard Hall notes that Brazil’s current account surplus was around 2% of the country’s gross domestic product versus a pre-pandemic deficit of about 3%. Hall notes that about half of the adjustment comes from import compression; another third comes from lower foreign direct investment (FDI) income payments.
Mexico – Mexican stocks, as measured by the IPC Index, returned about 1.5%. On Thursday, the Mexican central bank held its policy meeting and decided to reduce its overnight interest rate by 25 basis points, from 4.50% to 4.25%. The decision was widely expected. In their post-meeting statement, policymakers acknowledged the risks for inflation, economic activity, and financial markets but noted that the central bank’s “space” for responding with easier monetary policy is “limited.”
Sources: Barrons (Dow Jones & Company), Bloomberg Quint, The Economist Europe, Edward Jones Financial Reports & Trowe Price Market Insights