Weekly Markets ReviewGlobal Markets Weekly Market Review – Week 44, 2020

The ECB left its monetary policy unchanged, keeping its deposit rate at -0.5% and its emergency bond-buying program at EUR 1.35 trillion

With days left before the U.S. election, a trifecta of worries around the political outcome, the path of the virus, and the lack of progress on another fiscal package weighed on global stocks this week.

United States

Equities suffered their worst weekly declines since March, as the resurgence in the coronavirus and election uncertainty weighed on sentiment. With the narrow exception of the S&P 500 Index, the major benchmarks fell into correction territory on Friday morning, or down over 10% from recent highs. The declines were broad-based, but information technology and consumer discretionary shares fell the most within the S&P 500. The small utilities, materials, and real estate sectors held up best, while the Cboe Volatility Index (VIX) reached its highest level since early June.

Macroeconomic and political concerns seemed to dominate sentiment even though the week marked the peak of third-quarter earnings reporting season—180 of the S&P 500 companies were expected to report earnings during the week, according to Refinitiv. Thursday evening brought the release of reports from tech and internet giants Apple, Amazon, Alphabet (parent of Google), and Facebook. Each beat consensus earnings and revenue estimates, but all except Alphabet fell in trading Friday. Apple, in particular, weighed on the benchmarks as investors appeared disappointed by iPhone sales.

Index Friday’s Close Week’s Change % Change YTD
DJIA 26,501.60 -1833.97 -7.14%
S&P 500 3,269.96 -195.43 1.21%
Nasdaq Composite 10,911.59 -636.69 21.61%
S&P MidCap 400 1,893.19 -122.40 -8.23%
Russell 2000 1,532.76 -106.89 -8.13%

 

Europe

Shares in Europe tumbled the most since their March swoon, as investors worried that lockdowns aiming to control the coronavirus’ spread could push the eurozone economy into a double-dip recession. Political uncertainty in the U.S. also weighed on sentiment. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 5.56% lower, while Germany’s DAX Index dropped 8.61%, France’s CAC 40 lost 6.42%, and Italy’s FTSE MIB slid 6.96%. The UK’s FTSE 100 Index declined 4.83%.

The ECB left its monetary policy unchanged, keeping its deposit rate at -0.5% and its emergency bond-buying program at EUR 1.35 trillion. The ECB said risks were “clearly tilted to the downside” and promised to carry out a “thorough reassessment of the economic outlook and the balance of risks” and to “recalibrate its instruments, as appropriate, to respond to the unfolding situation” in December. The ECB said it would “ensure that financing conditions remain favorable to support the economic recovery and counteract the negative impact of the pandemic on the projected inflation path.” And, in an indication of which factors might influence its decision, the ECB stated that it would “carefully assess the incoming information, including the dynamics of the pandemic, prospects for a rollout of vaccines, and developments in the exchange rate.”

Asia

Chinese stocks fell in sympathy with the downturn on Wall Street, with the benchmark Shanghai Composite Index declining 1.6% and the large-cap CSI Index shedding 0.5%. The yield on the 10-year sovereign bond ended flat at 3.20%, and the dollar-renminbi currency exchange rate stayed broadly stable. In currency news, the People’s Bank of China (PBOC) asked domestic banks to suspend the use of a so-called countercyclical factor (CCF) in fixing the renminbi’s daily midpoint against the U.S. dollar, Reuters reported. The CCF—which is an adjustment made by contributing banks to influence the value of the yuan—was introduced in 2017 as a tool to dampen excessive currency volatility. The PBOC’s move to neutralize the CCF was interpreted as allowing the renminbi, which is tightly managed by the central bank, to become more market-driven.

Japanese stocks finished lower for the week. The Nikkei 225 Stock Average declined 2.29% (539 points) and closed at 22,977.13. The widely watched market yardstick lost ground in October and has declined about 2.9% 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 negative results. Worsening coronavirus numbers in the U.S. and Europe weighed on sentiment, and some quarterly earnings reports released late Thursday seemed to disappoint investors and sparked a sell-off at the end of the week.

Other key markets:

  • Turkey – Turkish stocks, as measured by the BIST-100 Index, returned -6.6%. The market was closed on Thursday for the Republic Day holiday, which commemorates the founding of the Turkish republic in 1923. Concerns about domestic inflation also weighed on Turkish assets.  On Wednesday, the central bank of Turkey raised its year-end 2020 inflation target to 12.1%, which is more than 300 basis points (three percentage points) higher than its previous expectation.
  • Chile – Stocks in Chile, as measured by the IPSA Index, returned -7.1%. Shares were dragged lower by weakness in world markets, as well as concerns that a second Chilean pension withdrawal bill, if it becomes law like one that took effect in August, could result in more outflows from the equity market.
  • South Africa – South Africa’s main stock index dropped for a fifth consecutive day Friday, falling 0.6% by 10:06 a.m. in Johannesburg, as gains in index giant Naspers Ltd. and its subsidiary Prosus NV failed to overcome weakness in miners and banks. A risk-off environment drove more than 100 of the 141 listed companies lower in early trade Friday.
Sources: Barrons (Dow Jones & Company), Bloomberg Quint, The Economist Europe, Edward Jones Financial Reports & Trowe Price Market Insights

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