• The London Financial

Weekly Markets Round-up: 24 - 28 August 2020

Updated: Sep 6, 2020


By Charles Heighton (King's College London) and Robert Tolan (Trinity College Dublin)


Keeping it brief:

This week it almost became boring for the S&P to reach new highs, as it has now happened six days in a row. The NASDAQ followed suit, while the Dow gained as well. Outside the US sentiment was more volatile and markets were more mixed.


Investors watched with bated breath on Thursday as Fed Chair Powell unveiled a new average inflation goal. Depending on who you ask, this was either a big deal or completely expected. This change did affect the prices of several asset classes.


The paradoxical rally of the past few months continued in US markets despite ongoing issues that have not yet been resolved. Virus cases are rising in hotspots worldwide, although to be fair hospitalisation rates are not. No stimulus deal has been agreed in Washington. Sino-US tensions eased slightly but you can feel the tension in the air.


The data:

Source: MarketWatch, showing the five-day performance.


The charts:


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


Blow by blow:


Monday:

A rally occurred across major markets based on US sentiment. Investors also awaited the Jackson Hole symposium later in the week.


APAC:

  • Equities gained following Wall Street’s move on Friday.

  • Rumours that President Trump is considering fast-tracking the AstraZeneca vaccine also boosted the markets.

  • Tencent jumped over 4% on news that the White House executive order banning WeChat is not as strict as first thought.

  • Outperforming tech stocks kept the ASX higher.

  • Chinese gains were reduced by ongoing tensions with the US.

EMEA:

  • Markets gained based on the bullish mood.

  • FTSE 100 climbed 1.7%.

  • Benchmarks in France, Germany, and Italy all gained over 2%.

  • It was the best day for EU stocks in two weeks.

  • Oil and gas stocks performed the best following positive moves in the price of Crude.

  • EU and the US signed a small trade deal that has caused the removal of some tariffs.

  • The markets brushed off increasing case numbers in major countries like Spain, France, and Germany.

AMER:

  • S&P achieved a new high.

  • Over four-fifths of the index gained.

  • Apple obviously gained and is now 7% of the index at a price-to-earnings ratio of 34.

  • Falling case numbers in the US drove stocks higher.

  • This caused bullishness in the smaller stocks that are more exposed to the virus, for example, the travel sector.

  • The possible fast-tracking of the Oxford vaccine to be available before the US election also caused optimism.

  • While this is a political move from Trump, it is also beneficial for the economy and the markets.

  • US regulators also approved the use of blood plasma from recovered patients on Sunday.

  • A reconfiguring of the Dow Jones saw Pfizer, Exxon, and Raytheon removed for Salesforce, Amgen, and Honeywell.

  • This reconfiguring has been caused by Apple’s stock split.

Beyond stocks:

  • Junk bonds also soared in the risk-on atmosphere.

  • US treasuries and investment-grade bonds fell.

  • Crude oil gained due to weather-related news.

  • Indecision in the dollar.


Tuesday:

A mixed day, where the US continued to drive higher while other markets remained more grounded.


APAC:

  • Initially traded mostly higher following US moves but lost momentum later in the session.

  • Cyclicals surged higher.

  • The US and China are also reporting having constructive conversations regarding the trade deal.

  • ASX was led higher by financials and tech stocks.

  • Nikkei 225 was driven higher by exporters thriving on a weaker currency.

EMEA:

  • German GDP data was better than expected.

  • Mixed day for major markets.

  • FTSE lost 1.1% as mining and energy companies fell.

  • Partly due to GBP strength which lowers export margins.

  • Business sentiment improved in Germany.

AMER:

  • New highs were set in the S&P and NASDAQ.

  • NASDAQ also rallied.

  • Markets were driven by positive sentiment regarding Sino-US trade talks.

  • Consumer confidence reached the lowest level in 7 years, taking the spring out of the rally but not reversing it.

  • Dow Jones underperformed.

Beyond stocks:

  • US government bonds sold off.

  • US oil producers shut virtually all production due to Hurricane Laura.


Wednesday:

FTSE All-World index hit a new high joining US markets.


APAC:

  • Stocks fell as trade talk optimism faded.

  • Lack of fresh news also caused this decline.

  • US data on Tuesday dented sentiment.

  • Officials warned that South Korea is on the cusp on a nationwide outbreak.

  • Defensive stocks outperformed.

  • Virus cases in the Philippines and Indonesia continue to soar.

  • Chinese tech stocks declined due to profit-taking.

EMEA:

  • Sentiment slightly increased for the Asian session, leading to gains in most markets.

  • News of fresh German stimulus bolstered the markets.

  • Tech stocks outperformed.

  • France is also set to release a recovery plan next week.

  • The stimulus news helped investors ignore rising case numbers.

  • FTSE 250 outperformed the 100 as domestic-focused stocks rallied.

AMER:

  • The FTSE All-World index reached an all-time high driven by Microsoft, Apple, and Amazon — its largest constituents which are up over 40% each this year.

  • US markets had a third straight day of record closes driven by the mega-cap tech stocks.

  • Upbeat updates from Salesforce and HP Enterprises also boosted the markets.

Beyond stocks:

  • US government bonds fell for the third day in a row.


Thursday:

A mixed day in markets, as Powell’s speech met expectations leaving non-US markets without enough optimism to rally.


APAC:

  • Markets lost momentum and fell as investors awaited the Jackson Hole meeting later in the day.

  • ASX did rise as mining stocks rallied.

  • Japanese exporters softened as the yen rallied and virus cases increased.

  • South Korean stocks fell as the central back revised predictions down.

EMEA:

  • Tech stocks gained in the morning following Wall street’s session yesterday, while banks fell.

  • HSBC stock was hit badly by news of poor treatment of pro-democracy customers in Hong Kong.

  • Anticipation for Powell’s statement boosted markets.

  • Markets most closed down.

  • Resource stocks were the biggest decliners.

  • A Reuters poll of fund managers demonstrated an expectation of a stalling European stock market until year-end.

  • WPP, the largest advertising agency in the world, gained over 6% as it reinstated its dividend.

  • British stocks ended mostly lower as company earnings this week weighed on sentiment.

  • An example is Rolls-Royce which has suffered significant damage from the economic climate.

  • ECB Chief Economist Philip Lane implied that the bank would use all options to bring inflation to the target level.

AMER:

  • Stocks rallied slightly higher boosted by Fed Chairman Powell’s speech at the Jackson Hole meeting.

  • S&P reached an intraday high of 3,500.00 and closed up.

  • Powell announced changes that will make the Fed more flexible.

  • The inflation target will now be an average of 2%.

  • This means that inflation can be allowed to go above 2% to propel growth.

  • He also said that the Fed will not be limited by a specific formula for average inflation.

  • This allows the Fed to keep stimulus plans in place even as inflation rises.

  • The initial market reaction was muted as this was expected, but the market eventually reacted positively reaching new highs.

  • Republicans are allegedly planning a smaller stimulus package of $500 billion.

  • This would not include stimulus checks.

  • Walmart joined Microsoft’s bid for TikTok.

Beyond stocks:

  • Government bond yields rose in most major markets.

  • Storm Laura was downgraded to a category three hurricane, lessening the effect on crude.

  • USD climbed after Powell’s speech but seesawed the rest of the day.

  • Gold fell 1.2% despite a 1% climb earlier in the day.


Friday:

Asian and American markets were bullish while Europe lagged as investors absorbed the changes at the US Federal Reserve.


APAC:

  • Most Asian markets rose significantly.

  • Japanese stocks were the exception, as they fell.

  • Driven by the announcement of Prime Minister Shinzo Abe’s resignation.

  • This presumably indicates the end of Abenomics.

  • Hong Kong stocks reached a monthly high on economic optimism.

  • Other Chinese markets rallied on economic data, earnings revisions, and PBOC action.

EMEA:

  • Markets slipped.

  • Tech and healthcare stocks fell while banks rallied.

  • Investors are fearfully watching increasing case numbers.

  • German consumer data worsened this month.

AMER:

  • Stimulus stalemate remains unchanged as continued talks have achieved little.

  • Markets gained slightly for the seventh consecutive day.

  • Tech stocks drove the S&P to its sixth record close in a row.

  • NASDAQ also set a new high.

  • Dow is now positive for the year.

  • An aide to the president bolstered gains by saying the Trump was willing to sign a trillion-dollar stimulus bill.

  • US consumer spending in July increased more than expected.

  • The savings rate remained well above pre-pandemic levels.

  • A less bullish sign.

  • PCE index measuring core inflation rose by 1.3% on last year.

  • Energy stocks gained as Hurricane Laura caused minimal damage.

Beyond stocks:

  • The dollar index fell as investors digested the Fed policy change.

  • US government bonds declined further in price.


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


The Next Storm


China has done what Europe and the United States have failed to do – made a reasonable attempt at easing Africa’s debt burden. International Monetary Fund (IMF) and World Bank programmes, in addition to bilateral programmes, have saddled the world’s poorest countries with untenable amounts of debt. Angola and Zambia have been the ones making the headlines but their debt problems are broadly representative of the continent.


With $50bn in external debt, almost 50% of GDP, Angola has been heavily exposed to bond markets for decades but the pandemic started putting nails in the coffin. With more than 40% of government revenue going towards interest payments, Angola has not been able to modernise its health and education systems, nor create an economy not totally exposed to the metal and rare earth markets. The IMF is predicting the current crisis will negate ten years of growth on the continent, so it would be reasonable to assume Angola is highly likely to revert to its 1990s or even 1980s self.