Global Markets Weekly Market Review – Week 45, 2020

Global stocks posted their largest weekly rally since April, despite the lack of a clear winner emerging from Tuesday’s presidential election in the United States as vote-counting continued in several pivotal states.

United States

Wall street value stocks outperformed high-valuation growth companies early in the week, but the momentum that has driven many growth stocks higher all year took control following the election. The tech-heavy Nasdaq Composite Index and the small-cap Russell 2000 Index performed even better than the broad large-cap S&P 500 Index. With former Vice President Joe Biden appearing to have the clearest path to victory and Republicans seeming likely to retain control of the Senate, investors began to anticipate a Goldilocks scenario of additional fiscal stimulus but more limited tax increases than under a “blue wave” Democratic sweep.

Federal Reserve policymakers met on Wednesday and Thursday but announced no changes to monetary policy. The Fed’s post-meeting statement noted that the coronavirus pandemic continues to meaningfully weigh on economic growth. In his press conference after the meeting, Fed Chair Jerome Powell said that the central bank still has monetary policy tools it can deploy to boost the economy if needed and that policymakers discussed the outlook for the central bank’s quantitative easing (QE) programs. Powell left open the possibility that the Fed could expand its purchases of long-term Treasuries.

Shares in Europe rallied in sympathy with U.S. equities while also receiving a lift from the generally strong quarterly earnings reported by European corporations and the additional stimulus measures announced in the UK. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 7.02% higher, while Germany’s DAX Index rallied 7.99%, France’s CAC 40 gained 7.98%, and Italy’s FTSE MIB climbed 9.69%. The UK’s FTSE 100 Index advanced 5.97%.

The Bank of England (BOE) increased its bond-buying program by a larger-than-expected GBP 150 billion to GBP 895 billion, with an eye toward helping to offset any damage caused by a renewed nationwide lockdown and uncertainty surrounding post-Brexit talks. The central bank said the increase would allow it to extend the asset-purchase program until the end of 2021. The bank also said that the outlook for the economy remained “unusually uncertain.”

Asia

Chinese stocks advanced as the prospect of a Biden presidency raised the outlook for improved U.S.-China relations. The benchmark Shanghai Composite Index ended up 2.2% and the large-cap CSI 300 Index rose 3.4%, according to Reuters data. The yield on China’s 10-year government bond increased to 3.22% as economic data showed the country’s recovery was on track. In currency trading, the renminbi rose 1.1% versus the dollar and closed at 6.621. Many policy analysts see scope for more cordial U.S.-China relations in trade, cross-border investment, and climate change. However, they caution that a major reengagement with China appears unlikely and that U.S. policy toward China regarding intellectual property rights, technology transfer, and national security may not change much under a Biden administration.

Japanese stocks finished sharply higher in the holiday-shortened trading week. Japan’s stock markets were closed on Tuesday in observance of Culture Day. The Nikkei 225 Stock Average advanced 5.87% (1,348 points) and closed at 24,325.23. This week’s market rally also lifted the widely watched market yardstick into positive territory for the year-to-date period (+2.8%). The large-cap TOPIX Index and the TOPIX Small Index, broader measures of Japanese stock market performance, also recorded strong results, although both remain underwater in 2020.

Other Key Markets:

• Mexico – Stocks in Mexico, as measured by the IPC Index, returned about 4.2%. Mexican shares rose with other emerging markets as investors embraced riskier assets following U.S. elections and the growing likelihood that former Vice President Joe Biden will become the next president of the U.S. Biden is seen as being less aggressive than President Donald Trump on matters involving trade and immigration.
• Stocks in Brazil, as measured by the Bovespa Index, returned about 7.4%.On Tuesday, Brazil’s Senate passed a bill that formally gives autonomy to the country’s central bank. This is a change from the current arrangement, which has the central bank governor and the entire monetary policy board serving at the pleasure of President Jair Bolsonaro. The bill goes next to the Chamber of Deputies for consideration. If it is passed by the lower chamber of the legislature and signed into law by Bolsonaro, it would make the central bank governor and board have fixed four-year terms that span presidential terms.