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The Trading Room: Weekly Market Review – Week 23, 2020

Stock markets globally surged, climbing for the third week in a row, amid signs that the global economy was recovering faster than many had expected from the impact of the coronavirus pandemic. The gains came as a surprise to many, as there were various regions across the world that went on protests against racism on the killing of George Floyd in the United States on the 25th of May.

United States

U.S Stocks recorded their best weekly gain in two months as investors celebrated signs of the beginning of an economic recovery. The small-cap indexes were particularly strong, with the Russell 2000 and S&P MidCap 400 indexes surging roughly 8%, while value stocks outpaced growth shares by a wide margin. The technology-heavy Nasdaq Composite Index established an intraday all-time high, and the S&P 500 Index moved within roughly 6% of its February 19 peak.

Official news on Friday that overall employment actually increased in May caught observers almost universally by surprise and sent the S&P 500 to its best daily gain in three weeks. Defying consensus expectations for a decline of around 9 million jobs, the Labor Department reported that employers added back 2.5 million positions during the month. Instead of rising to nearly 20% as forecast, the unemployment rate dropped to 13.3% from 14.7%. While the job gains paled in comparison to the 20.7 million jobs lost in April

Europe

Shares in Europe surged as countries eased lockdown restrictions and the European Central Bank (ECB) injected fresh stimulus into the eurozone economy. The pan-European STOXX Europe 600 Index ended the week 6.91% higher. Germany’s Xetra DAX Index climbed 10.60%, the CAC 40 in France advanced 10.47%, and Italy’s FTSE MIB Index gained 10.71%. The UK’s FTSE 100 Index added 6.45%

Core eurozone bond yields climbed on the week as the ECB increased its support for eurozone economies. In Germany, the 10-year bund yield traded at around -0.3% on Friday, up some 11 basis points (0.11%) from the start of the week. Peripheral eurozone bond yields fell markedly on the news, with the Italian 10-year yield slipping to its lowest level since March.

The ECB increased its pandemic emergency purchase program by EUR 600 billion to EUR 1.35 trillion, extending it until at least June 2021, and pledged to reinvest proceeds from maturing bonds until the end of 2022. The ECB kept its key interest rates unchanged and said it continues to stand ready to adjust all its instruments, as appropriate, to ensure that inflation moves toward the ECB’s goal “in a sustained manner.

 

Index

Friday’s Close Week’s Change % Change YTD
DJIA 27,110.98 1727.87 -5.00%
S&P 500 3,193.93 149.62 -1.14%
NSE 20 Share Index 1,939.59 -8.49 -26.93%
NSE All Share Index 139.18 2.05 16.36%
NSE 25 Share Index 3,200.71 -3.23 -21.94%

Asia

Japanese stocks continued their upward trend in the first week of June. The Nikkei 225 Stock Average advanced 986 points (4.5%) and closed at 22,863.73. Following a third consecutive week of strong gains, the Nikkei Average has recouped most of its steep March sell-off. The widely watched Japanese market benchmark is -3.4% for the year-to-date period. The large-cap TOPIX Index and the TOPIX Small Index, broader measures of Japanese stock market performance, also recorded solid weekly gains, but they remain down 6.3% and 9.4%, respectively, in 2020. The yen, which is generally considered a safe-haven currency, weakened versus the U.S. dollar, which could be interpreted as a sign of investor confidence in the global economic recovery. At slightly more than JPY 109.17 per U.S. dollar on Friday, the yen is slightly weaker than where it ended 2019.

Equity markets in China rose for the week, aided by a thaw in U.S.-China relations. The domestic CSI 300 Index added 3.4%, and the benchmark Shanghai Composite Index gained 2.8%.

One week after promising more forceful monetary policies to support the economy, the People’s Bank of China (PBoC) sprang into action with the creation of two targeted monetary programs. The PBoC set up a RMB 400 billion quota for the central bank to buy 40% of domestic loans to SMEs (small and mid-size enterprises) from local banks. Additionally, the PBoC pledged to help banks meet the cost of extending loan and interest payment relief to SMEs.

Kenya

Turnover on the Equities market on the Nairobi Securities Exchange was marginally lower this week with 98.9 million shares valued at Kes.2.3 billion exchanging hands during the week as compared to the 84.8 million shares valued at Kes.2.37 billion transacted the previous week.

The benchmark NSE All Share Index (NASI) added 2.05 points during the week to close at 139.18 bps, this represented a 1-week gain of 1.96%, a 4-week loss of 6.1%, and an overall year-to-date loss of 16.36%. The NSE 20 share index shed 8.49 points or 1.27% to close the week at 1,939.59 basis points. The NSE25 share index similarly, shed 3.23 or 0.44% during the trading week to settle at 3,200.17 basis points.

Small cap stocks continued to outperform the blue-chip counters despite experiencing low trading activities on small caps this week. Fame Tree Group Holdings continued to rise, gaining 24.8% in share price appreciation from last week’s close while Nation Media Group Plc was the week’s top losser, closing the week at 16.45, an 11.6% decline in share price value from last week’s close.

The NSE20 share index, one year chart performance.

The Derivatives Market closed the week with a total of 4 contracts valued at Kes.67,000. EABL contract expiring in 17th September 2020 moved 4 contracts valued at Kes.67, 000. This is against the  3 contracts valued at Kes.107,000 transacted the previous week.

Secondary trading on the bond Market at the Nairobi Securities Exchange registered reduced activity with bonds worth Kes.9.4 billion transacted this week as compared to the Kes.13.7 billion registered on the previous trading session.