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Global Markets Weekly Market Review – Week 41, 2020

Global markets were mixed during the week, posting declines earlier in the week and closing later higher, mixed with optimisms on the U.S elections and the health of the U.S President Donald Trump on the coronavirus. Global markets also posted the best weekly gain since early July, while long-term government yields rose to a four-month high.

United States

The S&P 500 Index had its best weekly gain in three months, as investors seemed to grow more optimistic about a new round of fiscal stimulus, as well as treatments for the coronavirus. The small-cap Russell 2000 Index surged over 6%, pulling it out of correction territory, or within 10% of its 2018 peak. Utilities and energy stocks outperformed, with the latter boosted by a rise in oil prices after OPEC Secretary General Mohammed Barkindo claimed that “the worst is over” for producers. Communication services shares lagged, weighed down by weakness in video gaming and cable stocks.

Wall Street kept a close eye on on-again, off-again negotiations over a new coronavirus relief package. Shares rose Monday after reports that House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin had spoken by phone and were prepared to exchange new proposals. The rally continued through Tuesday morning, but the market pulled back sharply after President Donald Trump tweeted in the afternoon that the economy was “doing really well” and that he had “instructed my representatives to stop negotiating until after the election.

Index Friday’s Close Week’s Change % Change YTD
DJIA 28,586.90 904.09 0.17%
S&P 500 3,477.13 128.69 7.63%
Nasdaq Composite 11,579.94 504.92 29.06%
S&P MidCap 400 1,995.53 92.72 -3.27%
Russell 2000 1,636.97 97.67 -1.89%
Europe

European shares rose on hopes that the U.S. government would pass additional measures to stimulate the economy. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 2.11% higher, while Germany’s DAX Index rose 2.85%, France’s CAC 40 advanced 2.53%, and Italy’s FTSE MIB added 2.79%. The UK’s FTSE 100 Index climbed 1.94%.

Bank of England Governor Andrew Bailey told an online webinar hosted by the European Commission that the UK economic recovery was uneven, that third-quarter output was probably 7% to 10% below pre-COVID-19 levels, and that the risks to the economy were “very much on the downside” because of the growing number of coronavirus infections in Britain.

The French economy rebounded 16% in the third quarter from an almost 14% contraction in the previous three months, the French central bank said. Business activity has picked up since the national lockdown was lifted early in May.

Asia

Japanese stocks surged over the week, recording their best weekly return in about two months. The Nikkei 225 Stock Average advanced 590 points (2.6%) and closed at 23,619.69. The market benchmark has declined (-0.16%) 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 large gains. The yen weakened and traded near JPY 106 per U.S. dollar on Friday.

China’s stock markets rose Friday after being closed from October 1 to 8 for the national Golden Week holiday. The Shanghai Composite A-share Index rose 1.7% and the large-cap CSI 300 Index gained 2.0%. Bonds sold off after the People’s Bank of China (PBOC) set out to drain a net RMB 560 billion of liquidity from money markets via open market operations. The yield on China’s 10-year sovereign bond increased 4 basis points to 3.21%.

The PBOC’s more hawkish stance, along with the relatively higher yields on Chinese bonds, added to the carry appeal of the renminbi over other currencies. The U.S. dollar/renminbi exchange rate rose 1.3% on Friday to close at 6.702. The dollar’s relative weakness against other Asian currencies has reduced concerns that the renminbi has become stretched. However, many analysts believe that the PBOC wants to support the currency ahead of U.S. elections in early November, which is expected to spur heightened volatility in foreign exchange markets.

Other Key Markets:
  • Turkey –  Turkish stocks, as measured by the BIST 100 Index, returned about 1.8%. The equity market advanced despite an increase in regional tensions and geopolitical concerns, but the lira was pressured lower versus the U.S. dollar.
  • Mexico – Mexican stocks, as measured by the IPC Index, returned 5.0%. At the beginning of the week, President Andres Manuel Lopez Obrador and his administration presented the country’s new infrastructure plan, which includes 39 private-public partnership (PPP) projects worth nearly USD 14 billion. The targeted sectors include communication and transportation, energy, water, and environment. On energy, there are five PPP projects listed for USD 4.6 billion being promoted by Pemex and the Federal Electricity Commission, which include an ethane terminal, a fertilizer plant, the installation and rehabilitation of two cokers, and a liquefaction unit.
  • South Africa – The FTSE/JSE ALSI returned -1.6% in September. The only positive return came from Financials, which delivered 2.3%. Meanwhile, Listed Property (SAPY index) returned -3%, Industrials -1.5% and Resources -3.4% The FTSE/JSE Capped SWIX All Share Index, which we use as the equity benchmark for most of our client mandates, returned -1.1%. SA bonds were flat at 0% (as measured by the FTSE/JSE All Bond Index), while SA inflation-linked bonds returned -1.5% and cash (as measured by the STeFI Composite) delivered 0.3%