Global markets were mixed but generally ended higher during the week as data on the coronavirus and various economic fronts streamed in during the week. On the global economic front, there was increased hope for a fiscal stimulus package. On the vaccine front, some trials have been paused due to health concerns, and Pfizer has filed an emergency-use plan for the end of November.
The large-cap benchmarks narrowly managed a third consecutive week of gains, while small-cap shares lagged slightly after a recent streak of outperformance. Within the S&P 500 Index, industrials and utilities shares outperformed, while financials recorded losses as investors gave a lukewarm reception to bank earnings reports. The small real estate sector was also weak.
The week marked the unofficial start of earnings season, with 31 S&P 500 companies expected to report third-quarter results, according to Refinitiv. Analysts polled by FactSet and Refinitiv currently expect overall third-quarter earnings for the S&P 500 to fall over 20% on a year-over-year basis.
|Index||Friday’s Close||Week’s Change||% Change YTD|
|S&P MidCap 400||1,997.33||1.80||-3.18%|
Stocks in Europe fell on burgeoning coronavirus infections, Brexit-related uncertainty, and the dissipating prospects of U.S. fiscal stimulus before the November 3 presidential and congressional elections. A rally in German debt pushed yields on these haven securities to the lowest level since the market swoon in March. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 0.78% lower. Major indexes lost ground: Germany’s Xetra DAX Index slid 1.09%, Italy’s FTSE MIB dropped 1.05%, and France’s CAC 40 gave up 0.22%. The UK’s FTSE 100 Index declined 1.61%.
European Central Bank (ECB) Chief Economist Philip Lane said in an interview with The Wall Street Journal that “the next phase is going to be tougher” for the European economic recovery. Although the pickup in business activity would continue in the fourth quarter and next year, much would depend on the extent of localized lockdowns. “The big question, and this is why there is so much uncertainty, is: how quickly can the current dynamic, with rising cases, be stabilized?” He played down expectations for fresh stimulus as soon as next month, saying policymakers will wait for information on 2021 budgets, the exchange rate, and oil prices, among other factors, before deciding on a policy response.
Japanese stocks retreated for the week. The Nikkei 225 Stock Average fell 209 points (0.9%) and closed at 23,410.63. The widely watched market yardstick has declined (1.0%) 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 strengthened modestly and traded above JPY 105 per U.S. dollar on Friday.
Chinese stocks rallied after investors returned from the national Golden Week holiday. The benchmark Shanghai Composite Index rose 2.0% and the blue chip CSI 300 Index advanced 2.4% in its third weekly gain. In fixed income markets, the yield on China’s 10-year sovereign bond rose four basis points to 3.25%, as strong September trade data reinforced hopes for a sustained recovery. Last month marked another strong month for foreign purchases of Chinese bonds, with foreign investors buying USD 20.2 billion in September. At a monthly press conference, People’s Bank of China (PBOC) officials appeared to show little appetite for cutting interest rates. The central bank injected RMB 500 billion into the financial system via its one-year medium-term lending facility, although the added liquidity was seen by market participants as not particularly generous, given upcoming tax payments.
China’s exports last month beat market forecasts and grew for the fourth straight month, jumping 9.9% year-on-year in U.S. dollar terms, according to preliminary official data. Exports to regions that were lagging until recently showed signs of improvement. Imports, which have so far trailed exports in the recovery, jumped in September, offering evidence of a pickup in domestic demand. As a result, many expect China’s trade surplus to shrink in the coming months.
Other Key Markets:
- Turkey – Stocks in Turkey, as measured by the BIST-100 Index, returned about 2.3%. Shares advanced, but the lira continued sliding to new all-time lows versus the U.S. dollar amid news that Turkey had a current account deficit in August of about USD 4.6 billion. Currency weakness could make Turkish exports cheaper on world markets, which may help reduce its sizable trade deficit, but it could also boost already-elevated inflation due to an increase in import prices.
- South Africa – Stocks in South Africa, as measured by the FTSE/JSE All Share Index, returned about -0.25%. Early in the week, the National Treasury requested a one-week delay (until October 28) in presenting the 2020 Medium Term Budget Policy Statement. The intention behind this report, as stated by the National Treasury in last year’s edition, is “to communicate government’s policy stance, and to encourage Parliament and the public to debate options for the economy and the public finances.”
Sources: Barrons (Dow Jones & Company), Bloomberg Quint, The Economist Europe, Edward Jones Financial Reports & Trowe Price Market Insights