• The London Financial

Weekly Markets Round-up: 10 - 14 August 2020


This Week in Markets: 10/08 to 14/08


Sino-US tensions, the still unagreed US stimulus package, and mixed economic data were on the mind of investors this week. US equities struggled to break out of a narrow range all week. Despite getting tantalizingly close to all-time highs, the S&P did not have the momentum to set a new record. The lack of momentum in tech stocks this week meant that the bullish sentiment eroded.


Going into next week, market participants will be focussed on any stimulus package news and may not show any clear signals until more information is released. Any news over the weekend regarding the meeting between US and Chinese officials to review the 'phase one' trade deal could also set the tone for next week.


The Data:

Source: MarketWatch, showing the five-day performance


The Charts:


Charts' source: TradingView, showing a five-day period


The Detail:

Monday:

Across the world, traders were focused on Sino-US tensions as Beijing hit back with sanctions on US citizens. Washington was also an area of high interest due to the still unagreed stimulus package. Tech stocks underperformed across markets.

APAC:

  • Markets traded mostly higher.

  • Chinese tech stocks fell again in response to increasing Sino-US tensions.

  • Tencent fell 4.8%.

  • Alibaba fell 2.7%.

  • The Hang Seng fell slightly due to the arrest of several outspoken activists, including Jimmy Lai — a high-profile opponent of the Chinese government.

  • The share price of Next Digital the company that Jimmy Lai runs tripled as some investors showed solidarity with the activist.

  • Chinese inflation data was better than expected.

  • Chinese PPI data was still negative but in line with expectations.

  • No trading occurred in Singapore and Tokyo due to a long weekend.

EMEA:

  • The announcement of Chinese sanctions on US officials dampened the markets.

  • Most major indices closed slightly up.

AMER:

  • US stocks had a similar day for the same reasons.

  • The S&P closed marginally up while the NASDAQ closed marginally down.

  • At one point, the S&P 500 was less than a percent away from the intra-day all-time high.

Tuesday:

A bullish day led by optimism regarding a US stimulus package across all major markets.

APAC:

  • Markets traded mostly higher gaining over a percent.

  • Participants were bullish regarding a US stimulus deal, although no news was released.

  • The exception was China, where markets declined marginally.

  • However, declines in tech stocks ended after two very bearish days in a row.

  • Liquidity increased due to the reopening of markets in Singapore and Tokyo.

EMEA:

  • UK data showed that the economy has shed 730,000 jobs since the pandemic started.

  • This did not prevent a bullish move.

  • Positive economic data from Germany bolstered the rally caused by stimulus optimism.

  • The announcement of a Russian vaccine also encouraged markets, as it may point to more companies achieving this soon.

  • Travel and leisure stocks performed particularly well.

AMER:

  • US stocks started the day bullish based on the same optimism.

  • In the last hour of trading, Senator Mitch McConnell stated that no talks had taken place since Friday.

  • This caused US indices to close down despite bullishness throughout most of the day.

  • Post-market, Joe Biden announced Kamala Harris as his running mate.

  • As a moderate, she should be a good choice for the markets.

  • Tesla announced a five for one stock split and gained in after-market trading.

Wednesday:

Overall bullish sentiment dominated from the European open based on positive data and news.

APAC:

  • Most markets moved lower.

  • Presumably due to Senator McConnell’s statement on Tuesday.

  • Some negative data releases in Australia dampened the markets further.

  • Westpac consumer sentiment was worse than expected.

  • Earnings growth was recorded at its lowest rate in twenty years.

  • Australia also had the most deaths ever in a single day due to Coronavirus.

  • Markets in New Zealand were also very bearish due to the first confirmed case of Coronavirus from local transmission in the country after a 100-day lull.

  • Restrictions have now been reinstated in Auckland.

  • The central bank also increased its bond-buying program.

EMEA:

  • UK stocks outperformed the continent throughout the session, as the FTSE 100 closed 2% up.

  • Due to higher-than-expected GBP output in June and strong earnings reports from several companies.

  • This rally occurred despite Q2 GDP data showing that the UK is now in a technical recession and had a record decline. Although this had already been forecast.

  • Most other major European markets posted a moderate gain for the day.

  • Eurozone industrial production data also showed a significant increase, further bolstering markets.

AMER:

  • US core consumer prices data, which measures inflation went up more than expected last month.

  • Although this was probably caused by price spikes due to supply issues for certain items, so the data may be less bullish going forward.

  • The major markets rallied throughout the day.

  • The S&P closed less than 0.5% away from the all-time high.

  • It was dragged upwards by the mega-cap stocks like Apple and Microsoft.

  • Although most stocks rallied in response as the index finished with two-thirds of its constituents in the green.

  • The S&P is now trading at 22.5 times the price to forward earnings.

  • Almost fifty percent higher than the average of 15.5 for the last decade.

  • Data also showed that US infection rates are declining, increasing the risk-on sentiment.

  • Positive vaccine news also bolstered equities.


Thursday:

A session lacking significant movement.

APAC:

  • A mixed session with some markets gaining, following Wall Street’s moves the day before, while others were flat.

EMEA:

  • Markets opened with bearish sentiment, possibly caused by some profit-taking.

  • This continued throughout the day.

AMER:

  • The US announced that tariffs on European goods would remain with some changes to the goods affected.

  • Nancy Pelosi stated that she was not prepared to negotiate further.

  • Treasury Secretary Mnuchin denied this.

  • Several companies like Apple approached the White House to contest the ban on WeChat, fearing that it will put US companies at risk.

  • US markets were mostly flat for the day but still hovered near highs.

  • The lack of positive news regarding the stimulus package held equities back.

  • S&P closed down 0.2% but is still marginally below the February high.

  • Weekly jobless claims also fell below a million, which was better than expected.

  • Although this may remove even more pressure from US senators.


Friday:

The UK’s decision to enforce a quarantine period on travellers from France caused European markets to sell-off. While the US markets were flat due to the lack of news about the stimulus package.

APAC:

  • Several Chinese data points came in lower than expected, harming the image of an economic recovery.

  • The markets ended the session mixed, with some rising — mostly Chinese stocks, while others ended flat or fell.

  • The People's Bank of China also announced further stimulus plans.

  • Royal Bank of Australia Governor Lowe stated that requirements for rate hikes would not be met for three years.

EMEA:

  • The UK’s announcement of a 14-day quarantine from France hit the travel sector hard as the session opened.

  • France warned of reciprocal action.

  • The wider market also fell on the open.

  • Major European markets fell around a percent.

AMER:

  • Treasury Secretary Mnuchin stated that he was willing to meet some of the Democrat's demands.

  • Major markets were slightly down.

  • Markets ended the week very near all-time highs.

By Charles Heighton - VP of Trading at King’s Global Markets


Joe Biden’s Economic Policy


With just eighty nine days to the US Presidential Election, it is a good time to ask: what are Joe Biden’s economic policies? The fact he has kept his economic advisers as secretive as possible does not help when trying to separate the wheat from the chaff, but his pitch is basically a rerun of the Obama administration.


Kennedyesque, the focus is on blue collar workers and minorities. There is not a word about the skyrocketing government and private debt, as well as what can be done about it. This is surprising, considering the presence of Jared Bernstein as an economic advisor, but hopefully debt will become a talking point once the election campaign heats up a little more. Nonetheless, as a Senior Fellow at the Center on Budget and Policy Priorities, Bernstein will be most concerned about wealth inequality. Currently the campaign has kept to character and been very vague on how it hopes to grow the Middle Class. All that Biden has come up with is launching a tax credits scheme for students that simply will not make a difference to the main cause of inequality: the debt burden incurred from America’s college education system.


Any pragmatism that the campaign hopes to exude will come from Benjamin Harris, who was Biden’s Chief Economist and Economic Adviser. Also serving as Chief Economist to Results for America, his thinking is data-based. Something Trump’s policies have consistently lacked. How Biden proposes to ensure a post-Covid rebound will likely come from Harris. In tandem with Heather Boushey, they are likely planning how to ensure such a rebound is equitable. As the President of the Washington Center for Equitable Growth, she will have to figure out how minorities are not left behind.


It will certainly not be Biden doing the thinking, as the reality is his record on race relations is abysmal. As an advocate for incarceration for non-violent drug offences, he has played a hand in the destruction of the African American family. As an opponent of desegregation in education, Biden stood in the way of the most effective route to equality — education. These advisers will have to come to the forefront of the campaign, whether they like it or not, if the campaign’s policies are to be taken seriously.


Larry Summers is lurking in the background of the campaign. A notorious insider, it is quite unlikely he will last the heat of the campaign, given opposition from the far-left of the party. Summers’ public admiration of my favourite economist, Milton Friedman, has resulted in intense scrutiny from the Bernie Sanders crowd. To appeal to the entirety of the Democrat party, it is hard to see how Biden can retain Summers as an adviser. Nonetheless, it seems the economic engine of the campaign have been doing a lot of thinking. Hopefully they will do some doing.


By Robert Tolan - University of Dublin, Trinity College



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