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Global Markets Weekly Review – Week 51, 2020

Global markets edged higher last week, with all major benchmark global indices hitting fresh all-time highs. Fiscal-stimulus optimism in the United States, along with a brighter longer-term outlook driven by the rollout of vaccines, continues to support sentiment in the market and the general global economic environment.

United States

The major indexes reached record highs as expectations grew for the passage of another federal coronavirus relief package. Information technology stocks outperformed within the S&P 500 Index, helped by gains in Apple and Microsoft. Energy stocks lagged despite oil prices touching nine-month highs on strong demand from India and China. Trading volumes were muted through much of the week in advance of the rebalancing of the S&P 500, which electric carmaker Tesla was set to join the following Monday.

After weeks of stalled negotiations, signs of progress emerged in congressional attempts to craft a new stimulus bill. A bipartisan group of lawmakers convened Monday to discuss a new USD 908 billion package.

By the end of the week, the outlines of a roughly USD 900 billion package appeared to emerge, including roughly USD 600 direct payments to individuals and supplementary federal unemployment assistance of USD 300 per week. Stocks pulled back on Friday, however, on reports that Republicans were demanding a provision barring the incoming Treasury secretary from providing the Federal Reserve with more emergency lending funds in 2021.

Index Friday’s Close Week’s Change % Change YTD
DJIA 30,179.05 132.68 5.75%
S&P 500 3,709.41 45.95 14.81%
Nasdaq Composite 12,755.64 377.77 42.16%
S&P MidCap 400 2,287.26 44.20 10.87%
Russell 2000 1,969.99 58.63 18.07%

Europe

Shares in Europe rose on optimism surrounding coronavirus vaccinations, better-than-expected readings from purchasing managers’ indexes in key eurozone economies, and signs of progress in U.S. congressional negotiations for another round of fiscal stimulus. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 1.48% higher, while Germany’s DAX Index rose 3.94%, France’s CAC 40 ticked up 0.37%, and Italy’s FTSE MIB added 1.26%. In London, the FTSE 100 Index ended the week down modestly, as the UK pound strengthened on earlier optimism over a trade accord with the European Union (EU). UK stocks tend to fall when the pound rises because many companies in the index are multinationals that generate significant overseas revenues.

The European Central Bank lifted a ban on European banks paying dividends but capped payouts and share repurchases at a combined 15% of an institution’s 2019 and 2020 profits or 0.2% of a lender’s key capital ratio, whichever is lower. The BoE lifted a ban on payouts late last week, urging banks to limit their dividends to 25% of their cumulative profits in 2019 and 2020 or 0.2% of the value of their riskiest assets, whichever is highest.

The BoE held interest rates at 0.1% and kept the target for its asset purchase program unchanged, as expected. Policymakers reiterated that they did not intend to tighten monetary policy until there is evidence that “significant progress” is being made in achieving the 2% inflation target. The Swiss National Bank (SNB) kept its key policy rate unchanged at 0.75%. Norges, Norway’s central bank, left its main rate at 0% but signaled that an expected improvement in the economy next year could support a rate increase in mid-2022.

Asia

Chinese stocks posted a weekly gain despite recording mild losses on Friday, when the U.S. announced that it was blacklisting China’s top chipmaker and more than 60 other companies for national security reasons. For the week, the large-cap CSI 300 Index rose 2.3%, while the country’s benchmark Shanghai Stock Exchange Composite Index added 1.4%.

Japanese stocks posted gains for the week. The Nikkei 225 Stock Average advanced 0.4% (111 points) and closed at 26,763.39. For the year-to-date period, the benchmark is ahead 13.1%. The large-cap TOPIX Index and the TOPIX Small Index, broader measures of Japanese stock market performance, also recorded weekly gains. The yen strengthened versus the U.S. dollar and traded near JPY 103 on Friday.

The Japanese government lowered its gross domestic product (GDP) growth forecast for the 2020 fiscal year (ending March 2021) to a 5% contraction from its July forecast for a 4.5% contraction. The changes reflect the winter resurgence of coronavirus infections and the reimplementation of restrictions on travel and other business closures. Conversely, the government concurrently upwardly revised its fiscal 2021 GDP growth forecast to around 4%, from its earlier 3.4% growth forecast, due to the benefits from its stimulus efforts. According to a Reuters poll of economists, six out of 40 respondents expect Japan’s economic growth to return to pre-pandemic levels in fiscal 2021, 15 expect this to happen in fiscal 2022, and 19 said this would take place in fiscal 2023 or later.

Other Key Markets:

  • Turkey – Turkish stocks, as measured by the BIST-100 Index, returned about 2.7%. Equity investors did not seem to react negatively to the imminent likelihood of long-threatened sanctions from a NATO ally.
  • South Africa – Stocks in South Africa, as measured by the FTSE/JSE All Share Index, returned about 0.6%. The market was closed on Wednesday for a holiday. In the latter part of the previous week, Health Minister Zweli Mkhize declared that the country was in the “second wave” of the coronavirus and cautioned that citizens should expect a faster rate of increase in cases and a higher peak in the number of cases than earlier this year.