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The Trading Room: Weekly Market Review – Week 24, 2020

Global equity markets pulled back this week, ending a string of consecutive weekly gains that had erased year-to-date losses for some major indices. This was in reaction to accelerating virus case counts in some parts of the united states and reporting of a second wave of infections in major global cities. As investors turned less optimistic, the price of gold climbed, and crude oil posted its first weekly decline since April. Oil prices began the week higher after the Organization of the Petroleum Exporting Countries (OPEC) and its allies agreed to extend their production cuts by another month. But oil prices reversed course, along with stocks and bond yields, after the economic warnings from the OECD and the Fed cast doubt on the outlook for demand.

 

Index

Friday’s Close Week’s Change % Change YTD
DJIA 25,605.54 -1505.44 -10.28%
S&P 500 3,041.31 -152.62 -5.86%
NSE 20 Share Index 2,011.77 72.18 -24.21%
NSE All Share Index 141.88 2.70 -14.14%
NSE 25 Share Index 3,285.90. 85.19 -19.87%

 

United States

Stocks suffered their worst weekly decline in almost three months, as investors appeared to harvest recent gains and respond to a worsening of the pandemic in parts of the country. Slower-growing value stocks surrendered their recent market leadership and recorded the steepest drops, and smaller-cap shares also under performed. Relatedly, two prominent value sectors—energy and financials—fared worst within the S&P 500 Index, while the fast-growing information technology sector held up best. Reflecting the renewed virus fears, Amazon.com, Netflix and other “stay at home” stocks easily outperformed airlines and other shares reliant on the reopening of the economy.

Europe

Equities in Europe fell—snapping four weeks of gains—on fears of a resurgence of coronavirus infections and a delayed economic recovery. The pan-European STOXX Europe 600 Index ended the week 4.99% lower. Among European markets, Germany’s Xetra DAX Index fell 6.13%, France’s CAC 40 Index declined 6.05%, and Italy’s FTSE MIB Index dropped 5.77%. The UK’s FTSE 100 Index slid 4.89%.

Gross domestic product (GDP) in the UK shrank by a record 20.4% in April from March as the country spent the month in a coronavirus lockdown, official data showed. The economy contracted by 24.5% year on year. ONS Statistician Rob Kent-Smith noted that the economy in April was the same size as it was in 2002.

The European Systemic Risk Board, which is hosted by the European Central Bank (ECB), recommended that the ban on dividend payments, bonuses, and share buybacks by banks in the European Union should be extended by another three months, which would be at least until the end of 2020.

Asia

Stocks in Japan declined for the week. The Nikkei 225 Stock Average fell 558 points (2.4%) and closed at 22,305.48. The widely watched benchmark has returned -5.7% for the year-to-date period. The large-cap TOPIX Index and the TOPIX Small Index, broader measures of Japanese stock market performance, recorded similar-sized weekly losses. The yen strengthened versus the U.S. dollar and traded near JPY 107 per U.S. dollar on Friday.

Stocks in China declined amid disappointing credit data and weaker global sentiment. The domestic large-cap CSI 300 Index was unchanged from the previous week, while the benchmark Shanghai Composite Index slipped 0.4%. China’s sovereign 10-year bond yield declined as inflation continued to slow and stayed below the government’s full-year target.

Over the past month, the People’s Bank of China (PBOC) allowed inter bank rates to rise by around 30 basis points. Meanwhile, a one-month rolling average of the overnight repo rate rose to 1.3% at the start of June from around 1% in early May.

Kenya

Equity turnover on the Nairobi Securities Exchange closed the week higher with 145 million shares valued at Kes.3.3 billion against 98.9 million shares valued at Kes.2.3 billion transacted the previous week.

The benchmark NSE All Share Index (NASI) inched up during the week,gaining 2.70 points this week to close at 142.88, this represented a 1-week gain of 2.66%, a 4-week gain of 4.01%, but an overall year-to-date loss of 14.14%. Similarly, the NSE 20 Share Index added 72.18 (3.72%) points from last week to close this week at 2,011.77 basis points and the NSE 25 share index advanced 85.19 bps (2.66%) to close at 3,285.90 basis points.

Britam Holdings gained a massive 49.54% to settle at Kes.9.72 with 14 million shares valued at Kes.124 million transacted. Kenya Re-Insurance shaved off 3.93% to close the week at Kes. 2.20 with shares worth Kes. 37 million transacted.

In the week’s news, Kenya’s CS Treasury Ukur Yatani during the week presented the budget estimates for fiscal FY20/21.

Key focus areas of the budget were the health sector, education sector, youth employment, economic stimulus, local procurement, and payment of pending bills. The budget points to an increased focus on self-sufficiency and local production expected to enhance economic recovery; hopefully, this will be sustained beyond 2020/21.

On capital markets, the Capital Markets Act is to be amended to allow for regulation of PE and VC firms which are allowed as an asset class for pension schemes.

NSE20
NSE20 Share index one year chart performance.

The Derivatives Market closed the week with a total of 21 contracts valued at Kes. 581,350. The KCB contract expiring on 18th June 2020 moved 8 contracts valued at Kes. 276,000. On the other hand, the Safaricom contract expiring on 18th June 2020 had 5 contracts transacted worth Kes. 149,250. This was a rise as compared to the 4 contracts valued at Kes.67,000 transacted the previous week.

Secondary trading on the bond Market at the Nairobi Securities Exchange registered growth in activity with bonds worth Kes 11.7  billion transacted this week as compared to the Kes.9.4 billion registered on the previous trading session.