Global Markets Weekly Review – Week 52, 2020
Global markets were mixed last week as investors weighed U.S lawmakers’ approval of a long-awaited relief bill against ongoing concerns surrounding the corona virus, U.K. travel bans and the reports of a new strain of the coronavirus.
The major benchmarks ended mixed as investors absorbed conflicting signals about fiscal stimulus and progress in fighting the coronavirus. The technology-heavy Nasdaq Composite Index and the smaller-cap benchmarks reached new intraday highs, while the large-cap benchmarks lagged. Technology stocks outperformed within the S&P 500 Index, helped by further gains in Apple, while communication services, consumer discretionary, and energy shares lagged. Markets closed early Thursday and were shuttered on Friday in observance of the Christmas holiday.
The passage of new stimulus legislation also supported sentiment. On Monday evening, both the House and the Senate passed a compromise USD 900 billion coronavirus relief package by wide margins, alongside an omnibus spending bill to fund the government through next September. Together with support for small businesses and extended unemployment benefits, the bill included USD 600 direct payments to individuals, half the amount provided in the first relief package last spring.
|Index||Thursday’s Close||Week’s Change||% Change YTD|
|S&P MidCap 400||2,310.54||23.28||12.00%|
Shares in Europe were roughly flat for the week ended Thursday, as hopes for a UK-European Union (EU) trade deal helped reverse sharp losses caused by the emergence of a new variant of the coronavirus.
The UK and the EU finally agreed on a post-Brexit trade deal, with the announcement coming after UK markets closed. The accord still must be approved by all EU member states. The agreement’s terms would represent a significant change in the relationship with the UK’s major trading partner and, some say, amounts to a “hard” Brexit in all but name. The Office for Budget Responsibility has forecast that Brexit will cost the UK 4% of its gross domestic product (GDP) over 15 years.
The EU approved the Pfizer-BioNTech vaccine for COVID-19, the disease caused by the coronavirus. The companies said they would supply 12.5 million doses to the EU by the end of the year, Reuters reported. The EU Commission also doubled its orders for Moderna’s vaccine to 160 million doses, with delivery expected to start in early 2021.
China’s benchmark stock index fell for the week ended Thursday as a flareup in Sino-U.S. tensions weighed on sentiment. The Shanghai Stock Exchange (SSE) Composite Index shed 1.0% over the four days ended Thursday, while the large-cap CSI 300 Index was nearly flat. On Monday, the Trump administration published a list of Chinese and Russian companies that it alleged had ties to their countries’ militaries. The list of 58 Chinese and 45 Russian companies requires a license for anyone seeking to sell them items that could be used for military purposes, according to a Commerce Department statement. The SSE Index recorded its biggest one-day percentage drop since September after the list was published, which marked the latest instance of U.S. actions targeting Chinese companies as President Trump prepares to leave office.
Japanese stocks declined for the week through Thursday. The Nikkei 225 Stock Average fell 0.4% (95 points) and closed at 26,668.35. 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, also recorded modest losses. The yen was little changed versus the U.S. dollar and traded in a narrow range between JPY 103 and JPY 104 on Thursday.
As expected, the Bank of Japan (BoJ) made no changes to its monetary policy stance at the December meeting. However, it did extend the corporate finance support measures through to September 2021 and announced a review of its monetary policy with the results expected in March 2021. The BoJ’s communication indicates that it will not change the current policy framework, including the policy rate and yield curve control, and, therefore, the focus is likely to be on the sustainability of monetary policy.
Other Key Markets:
- Turkey – The central bank of Turkey surprised investors by raising its benchmark interest rates by 200 basis points at its monetary policy meeting on Thursday (a basis point is 0.01 percentage points). Consensus expectations had been for a 150 basis point hike, so the larger move may be a signal that the central bank plans to aggressively combat inflation under its new governor. Recep Tayyip Erdogan, Turkey’s president, replaced the central bank chief in November. Turkish government debt had declined before the policy meeting in anticipation of the rate increase. Turkish stocks moved higher on the rate hike news, and the Turkish lira strengthened more than 1% against the U.S. dollar. The lira has been one of the worst-performing currencies versus the dollar in 2020.
- Russia – Russian stocks declined early in the week amid worsening sentiment toward riskier asset classes and on news that the U.S. Department of Commerce would move to block trade in goods and services with Russian companies that have links to the Russian military. The steep decline in oil prices on worries about weakening demand as the pandemic worsens also weighed on Russian stocks and the ruble. Russia is a major oil producer. Russian assets recovered to some degree later in the week as oil prices stabilized.