Last week saw the equity markets performing a balancing act between incoming positive vaccine news and ever-growing economic restrictions aimed at curbing the recent spike in virus cases and hospitalizations. The rotation out of the technology sector and into more cyclicals stocks continued, as the vaccine developments improved investor sentiment and confidence about next year’s outlook.
United States
The major indices ended mixed, as good news on the coronavirus vaccine front continued to be offset by worries about the worsening of the pandemic in most parts of the country. The Dow Jones Industrial Average, the S&P MidCap 400 Index, and the small-cap Russell 2000 Index all reached new intraday highs in the first part of the week before surrendering some of their gains. Energy shares outperformed as oil prices rose on hopes for an end to the pandemic in 2021, as well as signals that OPEC and other major oil exporters would delay a global production increase planned for January. Health care and utilities shares lagged.
Stock futures rose on the heels of two significant vaccine announcements during the week. On Monday, Moderna reported early data showing that its mRNA vaccine was 94.5% effective in preventing coronavirus infections while also appearing to prevent severe disease in the few test subjects who did contract the virus. Investors seemed further encouraged that Moderna’s vaccine confirmed the efficacy of the mRNA approach also used by Pfizer in partnership with Germany’s BioNTech.
| Index | Friday’s Close | Week’s Change | % Change YTD |
| DJIA | 29,263.48 | -216.33 | 2.54% |
| S&P 500 | 3,557.54 | -27.61 | 10.11% |
| Nasdaq Composite | 11,854.97 | 25.68 | 32.12% |
| S&P MidCap 400 | 2,148.51 | 35.25 | 4.14% |
| Russell 2000 | 1,785.74 | 41.70 | 7.03% |
Shares in Europe rose for a third consecutive week amid optimism on potential coronavirus vaccines. However, concerns that soaring rates of infection might trigger harsher restrictions curbed gains. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 1.15% higher, while Germany’s DAX Index advanced 0.46%, France’s CAC 40 gained 2.15%, and Italy’s FTSE MIB climbed 3.84%. The UK’s FTSE 100 Index added 0.55%.
Core eurozone bond yields fell slightly on the week. Yields rose at the start, with the German 10-year bund yield moving from -0.55% to about -0.52%, after more positive coronavirus vaccine news spurred a sell-off in debt that the market views as a haven. Lingering concern over the high infection rate, Hungary’s and Poland’s vetoes to the European recovery fund, and orders from the U.S. Treasury to pull money from some pandemic lending programs dragged yields lower, however. UK gilts and peripheral eurozone government debt largely tracked core markets.
Asia
Chinese stocks rose strongly after solid economic data lifted investors’ risk appetite. For the week, the large-cap CSI 300 Index gained 1.78% while the benchmark Shanghai Stock Exchange Composite Index added 2.04%, according to Reuters data. In fixed income markets, the yield on the sovereign 10-year bond increased six basis points to 3.34%. In currency trading, the renminbi strengthened by 0.6% against the U.S. dollar to close at 6.570. The People’s Bank of China (PBOC) injected RMB 800 billion (about USD 121 billion) in medium-term loans into the banking system and left interest rates on hold for the seventh straight month. The central bank also kept its one-year medium-term lending facility rate to financial institutions unchanged at 2.95%.
Japanese stocks ended the week with relatively modest gains. The Nikkei 225 Stock Average advanced 0.6% (142 points) and closed at 25,527.37. The widely watched market yardstick climbed above 26,000 on Tuesday but trended lower for the remainder of the week and closed the year-to-date period ahead 7.9%. The large-cap TOPIX Index and the TOPIX Small Index, broader measures of Japanese stock market performance, also recorded positive returns. The yen strengthened versus the U.S. dollar and traded near JPY 104 on Friday.
China and 14 other Asian countries signed the Regional Comprehensive Economic Partnership (RCEP), a trade deal that will eventually form a free trade area that includes over 30% of current global GDP and is expected to rise to about 50% of global GDP by 2030. The deal brings together China, Japan, and South Korea—the region’s top-three economies—under a regional trade pact for the first time and includes 10 Southeast Asian countries, Australia, and New Zealand. The deal calls for tariffs and quotas to be eliminated for 65% of regional trade in goods and sets a target of 90% in 20 years, with possible expansion to include other services and countries.
Other Key Markets
- Turkey – Turkish stocks, as measured by the BIST-100 Index, returned about 2.5%. The central bank held its first monetary policy meeting during the week with Governor Naci Ağbal. In the days prior to the meeting, Turkish President Recep Tayyip Erdoğan spoke out against high interest rates, repeating his unconventional belief that high rates cause Turkey to have high inflation.
- South Africa – The South African Reserve Bank (Sarb) left the repurchase rate (repo rate) unchanged at 3.5 percent as inflation is expected to remain contained in the medium term. This move is expected to restore consumer confidence ahead of the festive season buying after household income was severely affected by a lack of economic activity during the hard Covid-19 lockdown.
