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The Trading Room: Weekly Market Review – Week 22, 2020

A gauge of global equity markets climbed on Thursday on optimism for a speedy economic recovery and a massive stimulus plan in Europe helped lift regional stocks and the euro, while gold rebounded on a safety bid on deteriorating U.S.-China relations. MSCI’s gauge of stocks across the globe .MIWD00000PUS rose 0.46% but Wall Street ended lower after a late-session reversal on headlines that President Donald Trump would hold a news conference on Friday about China.

United States

At its peak Thursday, the S&P 500 Index moved within 10% of its all-time high, pulling it out of correction territory, according to some definitions. Meanwhile, the technology-heavy Nasdaq Composite Index climbed within almost 3% of its February peak before falling back. Utilities stocks outperformed, while energy stocks moved lower on reports of an increase in domestic crude inventories. Markets were closed on Monday in observance of Memorial Day.

Optimism about the gradual reopening of the global economy seemed to be the primary driver of sentiment. As restrictions on public gatherings continued to be lifted and retail establishments and restaurants received permission to serve customers in limited numbers, the daily number of new confirmed coronavirus cases rose moderately in some states but perhaps not as much as feared.

Europe

Stocks in Europe posted strong gains, as optimism fueled by reopening economies and proposals for more European stimulus offset fears of a second wave of coronavirus infections and increased U.S.-China tensions. The pan-European STOXX Europe 600 Index ended the week 3.0% higher. Germany’s DAX Index climbed 5.01%, the CAC 40 in France advanced 6.02%, and Italy’s FTSE MIB Index gained 4.90%. The UK’s FTSE 100 Index added 1.32%. Peripheral eurozone bond yields, meanwhile, fell markedly on the week. Comments from European Central Bank Vice President Francois Villeroy de Galhau sparked fresh hopes of further stimulus and helped to send the Italian 10-year bond yield from around 1.6% on Monday to 1.44% on Friday. Optimism over a proposed European recovery fund also suppressed yields.

ECB President Christine Lagarde warned that the eurozone economy will shrink by 8% to 12% this year, in line with the more severe scenario outlined by the ECB last month, because of the “sudden stop of activity” caused by the coronavirus. European Commission (EC) President Ursula von der Leyen unveiled a EUR 750 billion pandemic recovery plan. The EC would borrow from the market and distribute two-thirds of the funds in grants and the rest in loans, meeting some of the objections of Austria, Sweden, Denmark, and the Netherlands. Spain and Italy would be the main beneficiaries.

 

Index

Friday’s Close Week’s Change % Change YTD
DJIA 25,383.11 917.95 -11.06%
S&P 500 3,044.31 88.86 -5.77%
NSE 20 Share Index  1,948.08 66.80 -3.23%
NSE All Share Index 137.13 3.26 -2.32%
NSE 25 Share Index 3,203.94 75.73 -2.31%

Asia

Japanese stocks surged during the week. The Nikkei 225 Stock Average advanced 1,490 points (7.3%) and closed at 21,877.89. Despite the solid advance, the Japanese stock market barometer is still 7.5% lower for the year-to-date period. On Wednesday, May 27, the government announced Japan’s second fiscal 2020 supplementary budget, totaling JPY 117 trillion (USD 1.1 trillion). The latest stimulus package brings total supplementary additions to JPY 230 trillion. The total represents approximately 40% of Japan’s annual GDP.

Investors in Chinese equity markets were in a cautious mood ahead of President Trump’s response to Beijing’s move to curtail Hong Kong’s autonomy by imposing national security laws on the territory. The Shanghai Composite A-share index edged 1.4% higher over the week, while the CSI 300 large-cap index gained 1.1%. Investors worry that a punitive U.S. response to China could result in a tit-for-tat escalation from Beijing, further straining ties between the two countries and dampening prospects for a global economic recovery in 2020.

Kenya

Equity turnover on the Nairobi Securities Exchange closed the week marginally lower with 84.8 Million shares valued at Kes 2.37 Billion transacted this week against 80.9 Million shares valued at Kes.2.4 Billion transacted the previous week.

The benchmark NSE All Share Index (NASI) shed 3.26 points to close the week at 137.13, representing a 1-week loss of 2.32%, a 4-week loss of 2.20%, and an overall year-to-date loss of 17.60%. Meanwhile, The NSE 20 Share Index was down 66.80 points from last week’s close to 1,948.08 basis points. The NSE 25 share index shed 75.73 bps lower (2.31%) to close at 3,203.94 basis points.

Kenya Airways was the week’s top looser in terms of value, closing the week 29.84% lower at Kes.2.21 per share, KQ moved 2.8 million shares valued at Kes.7.7 million. Safaricom Plc declined by 2.73% to Kes.28.55, down from Kes.29.35 registered the previous week with shares worth Kes.795 Million transacted; this represented 33.45% of the week’s traded value.

In economies, the Kenya National Bureau of Statistics released CPI figures and rates of inflation for May 2020. Year on year inflation stood at 5.5%, down from 5.6% in April 2020. Inflation was largely driven by an increase in prices of food and beverages, with the increase of some food items outweighing the decrease of others. Food inflation was up 10.6%y/y while fuel inflation was up 3.0%y/y, largely on higher public transport fares. Non-food non-fuel inflation rose by only 1.8%.

NSE20
The NSE20 share index one year chart performance

The Derivatives Market closed the week with a total of 3 contracts valued at Kes.107,000. KCB contract expiring in 18th June 2020 moved 2 contracts valued at Kes.73, 000. This was against the 16 contracts valued at Kes.458,000 transacted last week.

The secondary bond market of the NSE recorded a rise in activity with bonds worth Kes.13.7 Billion transacted compared to the Kes.10.3 Billion registered during the previous session.