• The London Financial

Weekly Markets Round-up: 17 - 21 August 2020


Market Recap: 17th – 21st August


Keeping it brief:

It was a mixed week for global markets. Major US indices saw a fourth week of consecutive gains as tech stocks heated up again. Apple hit the two trillion mark and Tesla now has a bigger market cap than Disney.


In other markets, it was a bearish week. Investors weighed up political tensions between China and the US, the stalemated stimulus deal from the US, and a slowing economic recovery in the Eurozone.


In essence, US indices continued to shrug off any form of bad news and rallied higher, ignoring the world in which their constituent companies are rooted. Outside the US markets remained slightly more grounded and reacted to bad news.


The data:

Source: MarketWatch, showing the five-day performance


The charts:

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


Blow by blow:


Monday:

US markets remained below all-time highs, still held back by Sino-US tensions and the lack of a stimulus package.


APAC:

  • US-China review meeting of trade talks was delayed indefinitely.

  • Mixed reasons were leaked.

  • Chinese equities rallied due to a stimulus injection from the central bank.

  • The package equated to over 100 billion USD to boost liquidity.

  • Chinese central bank action boosted some markets, but the session was mixed.

  • This rally occurred despite President Trump considering action against more Chinese companies like Alibaba.

  • He also increased pressure on ByteDance, the owner of TikTok.

  • Data from Tokyo showed that the Japanese economy declined 7.8% in Q2, which is substantially worse than some surrounding economies.

  • This caused the Topix to fall 80 basis points.

  • The Auckland lockdown was extended for 12 days and the upcoming election has been delayed due to virus fears.

EMEA:

  • Markets mostly gained.

  • Gains from sectors like mining compensated for further falls in travel stocks.

  • This mining gain was driven partly by the Chinese stimulus.

  • Some countries reintroduced certain lockdown rules due to outbreaks.

  • E.g. Spain and Italy.

AMER:

  • S&P tested the all-time intraday high but still could not breach it.

  • The market closed marginally below that high.

  • NASDAQ also climbed slightly under 1%.

  • Nancy Pelosi attempted to bring the house back to vote on actions affecting the US Postal Service.

  • A CNN National Poll showed Biden’s support down at 50% while Trump’s support increased to 46%.

  • Data showed that manufacturing in New York state for August was down from the prior month, a worrying signal for the recovery.

Beyond stocks:

  • Gold climbed 2%.

  • Silver climbed 4%

  • US ten-year Treasuries fell marginally.

  • WTI and Crude declined slightly but did not move significantly.


Tuesday:

Another day was held back by political tensions, both international and domestic. The current protests in Belarus also affected the markets negatively. US markets were less concerned and new highs were set.


APAC:

  • A mixed session, as Aussie stocks rose slightly, while Chinese and Japanese stocks fell.

  • Shares in makers of computer chips fell dramatically after the Trump administration announced a plan to force companies to apply for licenses to sell chips to Huawei that use US technology or equipment.

EMEA:

  • Mixed day for European markets, with little momentum.

  • FTSE 100 and STOXX 600 declined slightly.

  • Bank and energy stocks led the declines as investors weighed up the increasing Sino-US tensions.

  • Increasing case numbers in certain regions also negatively affected markets.

AMER:

  • Comments from US politicians made it seem like no stimulus deal was on the cards.

  • Oracle stated interest in acquiring TikTok.

  • The S&P finally broke its intraday all-time high after toying with the level for the past week.

  • The index also set a closing record.

  • The market has now rallied over 50% since the low in late March.

  • The NASDAQ all set a new high.

Beyond stocks:

  • Gold soared back up $2000, driven by continued dollar weakness.

  • The Yen rallied as a haven due to the ongoing political risks.

  • The dollar fell for the fifth day in a row.


Wednesday:

Fears over the extent of the economic recovery held markets back and caused a very mixed session.


APAC:

  • Most markets gained slightly but in China, stocks fell due to Sino-US tensions.

  • Some mixed data releases.

  • ASX was driven by certain stocks with better-than-expected earnings reports.

  • Morning trading was halted in Hong Kong due to a typhoon signal.

EMEA:

  • Markets were muted most of the day but late in the day, they moved up with US stocks.

  • UK inflation data showed a 1% rise in July.

  • Brexit deal-making was on investors’ minds as the negotiations restarted.

  • UK airline stocks ended the day strongly after plans of a shortened quarantine period for travellers were mentioned.

AMER:

  • Equities inched slightly higher at the open but markets were mostly muted and eventually ended down.

  • Although the S&P set a new intraday record.

  • The S&P is now up 5% year to date.

  • Late Tuesday evening Trump claimed that no talks with China were occurring; he was also non-committal when asked if he would pull out of the current trade deal.

  • US retailers gained after Target released earnings showing double the expected profit.

  • Apple became the first company to reach a market cap of $2 trillion although it was brief.

  • The FOMC minutes from July stressed that uncertainty for the economy’s future was very elevated.

  • But they also signalled that no further unconventional measures were on the cards.

  • This caused a late pullback in stocks.

Other markets:

  • The dollar ended its string of down days and traded flat.

  • A sale of 30-year German Bunds saw record demand.

  • Gold fell.


Thursday:

Fed minutes from Wednesday hampered most markets and caused a down day, although US tech stocks kept some indices positive and a new high was even set by the NASDAQ.


APAC:

  • Markets turned bearish due to the Fed minutes stating that many of the members were not considering yield curve control.

  • Reports emerged stating that US and Chinese negotiators will be meeting soon.

EMEA:

  • Stocks started the day down again based on the Fed statement and finished negatively.

  • Financials and mining stocks led the decline.

  • Worries over increasing virus cases in Europe also scared investors.

AMER:

  • Despite early losses, tech stocks rallied to keep the market positive for the day.

  • Jobs data showed that more than 1.1 million Americans filed for unemployment benefits last week.

  • Higher than the last release and higher than predicted.

  • Apple closed the session with a market cap above $2 trillion.

  • Only two years after it hit $1 trillion.

  • Tesla stock also closed above $2000 a new record.

  • Giving it a market cap larger than Disney’s.

  • NASDAQ closed at a new high driven by soaring tech stocks.

Other markets:

  • Yields on US treasuries fell as prices rose.


Friday:

Most markets rallied slightly, driven by the move of US tech stocks on Thursday.


APAC:

  • Most markets gained following the tech rally on Wall Street.

  • Poor PMI data and weakness in some stocks, caused the ASX to fall.

  • Chinese official confirmed meetings with the US in the next few days.

EMEA:

  • The UK submitted a plan for a free trade agreement this week with the EU.

  • Although negotiators in the UK and EU said that no progress had been made.

  • Data showed that the economic recovery is faltering in the EU.

  • Although German PMI data was the highest in two years.

  • UK data showed a positive increase in business activity and retail sales.

  • Markets had a choppy day and major indices closed slightly down.

  • Some travel stocks were up partly on merger rumours.

AMER:

  • The S&P closed at a record high for the second consecutive day.

  • The NASDAQ also rose slightly.

  • This marks a full month of consecutive gains in US markets.

Other markets:

  • The GBP and EUR fell on the news that no Brexit progress had been made.


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



Turkish Lira


It has been a tough few weeks for the Middle East. Following on from the disaster in Beirut, Erdogan’s mismanagement of Turkey has come a cropper. A near currency collapse meant the Lira hit its lowest value ever last week at $1: 7.21 Turkish Lira. In a country that relies on imports to keep its manufacturing industry operating, this is a nightmare scenario. Now with a ballooning Balance of Payments deficit, it looks like Turkey will have to abandon its ‘growth at any cost’ mindset to save the country.


How did what used to be one of the Middle East’s wealthiest countries end up in this mess? Pre-Covid, Erdogan boosted the economy with low rates and heightened government spending to encourage entrepreneurialism and to increase capital inflows. Amidst Covid, emerging market currencies tanked as exports fell due to lockdown, but imports remained more or less the same. Turkey imports almost all of its oil and natural gas and with over 100,000 millionaires, luxury imports have withstood the onslaught wrought by the pandemic. The ordinary people have been hard hit by the collapse in tourism and so there is a sense of tension comparable to Arab Spring Egypt. Indeed, the Kurds may capitalise on this instability. Turkey is undoubtedly in for interesting times.


A few months ago, interest rates were cut from 12% to 8% to little avail. Growth remained low. Not one to claim wrongdoing, Erdogan blamed western powers for his inability to resuscitate the economy. An attempt at strengthening the currency through buying back government debt and various other instruments failed. Seeing Erdogan was nearly out of options, Turkish banks got out when they could and, as the largest bondholders of Turkish debt, this sent shockwaves through the bond market. Currently Turkish debt is yielding below the rate of inflation so everyone is getting out when they still can.


Running out of its reserves, Turkey must either hike rates to ensure money starts coming in again, or it must slash government expenditure to an extent not seen in its history. Taking Erdogan at his word, the market greeted news that a huge oil and gas field has been found in Turkish water with a little elation. There was a slight uptick against the US Dollar to 7.35 Lira, but frankly I would take this announcement from Erdogan with a pinch of salt and kindly ask to see the geological reports. The fundamental flaw in the Turkish economy is that it has been captured by Erdogan and his henchmen and they have mismanaged the economy to their personal benefit. At the crossroads between east and west and with one of the youngest populations in Eurasia, Turkey must escape Erdogan’s clutches to reach its potential or at least start channeling Ataturk, the nation’s founder.



By Robert Tolan - University of Dublin, Trinity College


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