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Global Markets Weekly Review – Week 50, 2020

Equities closed the week lower, led by the real estate and financial sectors, as the recovery in employment growth appears to be stalling and as talks between Republicans and Democrats over another round of fiscal stimulus continue to drag on.

United States

The major indexes hit new highs on Wednesday but pulled back to end the week mixed. The small-cap Russell 2000 Index outpaced the large-cap S&P 500 Index for the fifth consecutive week and recorded a modest gain. Within the S&P 500, the energy sector outperformed by a wide margin, as international (Brent) oil prices crossed USD 50 per barrel for the first time since the onset of the pandemic.

Positive vaccine news appeared to boost investor sentiment early in the week. On Tuesday, the U.S. Food and Drug Administration (FDA) released data confirming that the Pfizer/BioNTech vaccine was 95% effective while resulting in severe adverse reactions in only a limited and mostly younger set of trial participants.

Treasury yields decreased through most of the week amid uncertainty over fiscal stimulus talks in the U.S. and Brexit trade negotiations. (Bond prices and yields move in opposite directions.) Solid industrywide inflows into municipal bond portfolios supported the sector’s performance, as did light dealer inventories and subdued levels of tax-exempt issuance.

Index Friday’s Close Week’s Change % Change YTD
DJIA 30,046.37 -171.89 5.28%
S&P 500 3,663.46 -35.66 13.39%
Nasdaq Composite 12,377.87 -86.36 37.95%
S&P MidCap 400 2,243.06 0.56 8.73%
Russell 2000 1,911.36 20.01 14.56%

Europe

European shares fell on concerns about the rising numbers of coronavirus cases in key economies and uncertainty surrounding a post-Brexit trade deal and U.S. stimulus measures. In local currency terms, the pan-European STOXX Europe 600 Index ended the week about 1.00% lower, while Germany’s DAX Index fell 1.39%, France’s CAC 40 declined 1.81%, and Italy’s FTSE MIB tumbled 2.15%. The UK’s FTSE 100 Index was flat.

The European Union passed the EUR 1.8 trillion budget, which includes a EUR 750 billion coronavirus recovery fund, for 2021 to 2027 after Hungary and Poland dropped their objections to tying payments to rule of law principles. The fund will start distributing money to needy member states in the second half of next year in the form of grants, raised via EU debt issuance, and loans.

Talks between British Prime Minister Boris Johnson and Ursula von der Leyen, the European Commission president, on Wednesday failed to break the deadlock over a UK-EU trade deal. The two leaders agreed to set a “final” deadline of Sunday for their negotiating teams to make a last attempt to reach agreement. A day later, Johnson said there was a “strong possibility” of no deal.

Asia

China equities fell on renewed tensions with the U.S. after a second major index provider removed some Chinese companies from its benchmarks following a Trump administration executive order. The large-cap CSI 300 Index sank 3.5%, its biggest weekly drop since September, and the Shanghai Composite Index shed 2.8%. Sentiment weakened after S&P Dow Jones Indices (S&P DJI) said it would remove 21 Chinese companies from its global stock and bond benchmarks after the U.S. Defense Department earlier this year designated the companies as having ties to China’s military.

Japanese stocks posted mixed results for the week. The Nikkei 225 Stock Average declined 0.4% (99 points) and closed at 26,652.52. For the year-to-date period, the benchmark is ahead 12.7%. The large-cap TOPIX Index and the TOPIX Small Index, broader measures of Japanese stock market performance, recorded weekly gains. The yen was little changed versus the U.S. dollar and traded near JPY 104 on Friday.

The economic stimulus plan, unveiled on Tuesday in Japan, includes initiatives focused on reducing carbon emissions and the implementation of digital innovation. The government also intends to increase its funding to various prefectures to increase the number of hospital beds and medical care capacity and provide additional monies for the Go To Travel program, which promotes domestic tourism. Suga said the additional stimulus would boost the economy by 3.6%, but many economists think that number is too optimistic and will more likely be in the 1% range for the fiscal year ending March 2022.

Other Key Financial Markets:

  • Brazil – Stocks in Brazil, as measured by the Bovespa Index, returned about 1.2%. Early in the week, Brazil reported that inflation rose 0.89% in November on a month-over-month basis. This was higher than expected. Food prices led the increase, with food at home up almost 3% month-over-month, while manufactured goods prices remain the other main source of inflationary pressures. There are signs of more inflation in products affected by acute supply-chain issues, such as furniture and automobiles, but the supply-chain issues should be resolved over time.
  • Chile – Stocks in Chile, as measured by the IPSA Index, returned about -2.7%. Late the previous week, the legislature approved, and President Sebastian Pinera signed into law, the country’s second pension withdrawal bill this year. Like its predecessor, which was enacted in the latter part of the summer, the law enables pension participants to withdraw some of their pension balances on an emergency basis—up to 10% in this instance—due to the pandemic-driven economic downturn