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Global Markets Weekly Market Review – Week 36, 2020

Global equity markets saw volatility return during the week as U.S. stocks swung wildly on Thursday and Friday, ending the session modestly lower, capping a turbulent two-day stretch of trading that snapped a continuous winning steak on major global index.

United States

U.S Stocks finished the week lower, as investors took profits after an August rally that left the major benchmarks at or near all-time highs. The technology-heavy Nasdaq Composite Index suffered the largest losses, declining more than 3%, but has still produced significant gains on a year-to-date basis. The S&P 500 Index also remained positive for the year, but the more narrowly focused Dow Jones Industrial Average slipped back into negative territory for 2020. Value stocks lost ground but held up better than their growth counterparts.

Although the S&P 500 finished Monday with modest losses, the benchmark still returned more than 7% in August, its best month since April. The market climbed on Tuesday and Wednesday, driven by some of the tech names that have propelled the recovery from the late-March lows.However, sentiment quickly shifted on Thursday as the S&P 500 fell 3.5%, led lower by tech names.

A light week for economic data was highlighted by the Labor Department’s monthly nonfarm payroll report, which showed that employers added 1.4 million jobs in August, a number in line with consensus estimates. Temporary workers who were hired to complete this year’s census made up 238,000 of the total, but employment gains were also solid in retail, professional and business services, and the leisure and hospitality sectors. However, the unemployment rate, which is based on a separate survey, fell more than expected, dropping to 8.4% in August from 10.2% in July.

 Index Friday’s Close Week’s Change % Change YTD
DJIA 28,133.31 -520.56 -1.42%
S&P 500 3,426.96 -81.05 6.07%
Nasdaq Composite 11,313.13 -382.50 26.09%
S&P MidCap 400 1,946.51 -48.41 -5.65%
Russell 2000 1,536.12 -42.22 -7.93%

Europe

European shares pulled back in sympathy with the technology-led decline in U.S. equities. However, news of merger talks between Spanish lenders Bankia and CaixaBank helped to curb losses. In local-currency terms, the pan-European STOXX Europe 600 Index ended the week 1.76% lower. Germany’s Xetra DAX Index fell 1.46%, France’s CAC 40 slid 0.76%, Italy’s FTSE MIB declined 2.27%, and the UK’s FTSE 100 Index dropped 2.76%.

There is growing pessimism that the UK and EU trade talks next week will break the impasse between the two sides, after Prime Minister Boris Johnson said the UK would look to double its fishing quota. EU officials said the demand would lead to a loss of one in three EU fishing boats. The Times newspaper said senior government officials put the chances of a deal at 30% to 40% and that a breakthrough on the key issues of fisheries and state aid remains elusive.

Asia

Mainland Chinese stock markets fell, with both the large-cap CSI 300 and benchmark Shanghai Composite Index shedding 1.5% following the overnight sell-off on Wall Street. The yield on China’s 10-year bond increased and ended the week at 3.14%. The People’s Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) announced simpler rules to facilitate trading of domestic bonds by overseas investors

Japanese stocks posted gains for the week, despite the sell-off on Friday. The Nikkei 225 Stock Average advanced 323 points (1.4%) and closed at 23,205.43. The widely watched market benchmark remained under water (-1.9%) for the year-to-date period. The large-cap TOPIX Index and the TOPIX Small Index, broader measures of Japanese stock market performance, posted similar-sized weekly gains. The yen weakened slightly and traded near JPY 106 per U.S. dollar. The yield on 10-year Japanese government bonds declined for the week as the Bank of Japan (BoJ) reaffirmed its commitment to an ultra-accommodative monetary policy.

Berkshire Hathaway Chairman Warren Buffett, known as a consummate value investor, made headlines when his company announced that it had invested USD 6.2 billion in five of Japan’s major trading houses. Berkshire has acquired slightly more than 5% of the shares in Itochu, Marubeni, Mitsubishi, Mitsui & Company, and Sumitomo during approximately the past 12 months, and could increase the position to 9.9%

Other Key Markets

  • Turkish stocks, as measured by the BIST-100 Index, returned about -1.3%. Shares fell and the lira touched a new all-time low amid tightening Turkish financial conditions. A sharp, late-week decline on Wall Street also weighed on investor sentiment, as did Turkish tensions with Greece and the divided island of Cyprus regarding Ankara’s search for energy resources. News that Russia would hold “live-fire” naval exercises in the region later in September raised the risk of increasing tensions further.
  • Chile – On Wednesday, Chile’s central bank also released its quarterly monetary policy report, which set out new economic forecasts and policy expectations. This included an improved GDP growth rate to a range of -4.5% to -5.5% this year versus -5.5% to -7.5% in the previous report. Meanwhile, the BCCh also notched up its inflation forecasts to 2.8% from 2.7% in 2020 and to 2.6% from 2.2% in 2021. Chilean stocks, as measured by the IPSA Index, posted modest losses for the week as of Friday afternoon.
Sources: Barrons (Dow Jones & Company), Bloomberg Quint, The Economist Europe & Brazil Business Post, Edward Jones Financial Reports