Weekly Market Commentary (November 02 – November 06)
Global Market Highlights
Equities in the US posted their largest weekly gains since April, even though there was no clear victor in the elections just yet. Biden seemed to be the most likely winner of the votes, while Republicans seemed likely to retain control of the Senate. Investors began to formulate plans for a goldilocks scenario of additional fiscal stimulus and a limited tax increase than under a full blue wave sweep.
Value stocks outperformed growth stocks in the first half of the week, but after the election growth stocks started a rally. Although this was the second-busiest week of the quarter for earnings releases from S&P 500 companies, broad macro sentiment about politics and the economy seemed to drive the market.
The Fed hosted a meeting on Wednesday and Thursday and announced no change to their monetary policy. In the press conference, policymakers stated that the pandemic keeps weighing on economic growth. Powell also said that the central bank has not ran out of potential tools to deploy to support economic growth. He left open the possibility that the central bank could expand its QE programs.
Macroeconomic data was light during the week as the October unemployment report showed that the economy added 638,000 new jobs which is better than expected and drove unemployment down to 6.9% from 7.9% in September. However, COVID-19 related news was depressing as new cases have been increasing as more than 100,000 daily new cases have been reported nationwide for the first time. This caused some states and municipalities to consider expanding restrictions.
After weeks of negative performance, the week proved great for indices as the SCP 500 index gained 7.12%, the Dow Jones Industrial Average was up 6.87%, while the Nasdaq Composite index closed 9% higher than the previous week.
It was also a good week for equity markets in Europe as the strong quarterly reports and additional stimulus measures pushed markets higher. The European Stoxx Europe 600 index ended the week 7% higher, the German Dax 30 gained 7.99%, while in the UK the FTSE 100 advanced close to 6%.
Trying to prevent the spread of the virus, England started a nationwide lockdown that will last until the first weeks of December, while Greece also implemented a lockdown that will last three weeks to prevent the spread. France has the highest number of infections in Europe, therefore they have announced further restrictions to add to the nationwide lockdown. The Spanish government has already implemented a nationwide nighttime curfew which came under pressure from regions to expand it into a nationwide lockdown. Italy classified four zones as red, where people are not allowed to leave their municipalities for any reason.
In the UK, the BoE increased its bond-buying program to 895 billion pounds to help offset any damage caused by a renewed nationwide lockdown and uncertainty surrounding post-Brexit talks. The program will continue until the end of 2021 and the bank stated that the economy remained in an unusually uncertain situation.
Two weeks of intensified negotiations between the UK and the EU broke up with both sides saying they were still far apart on the core issues of state aid for companies, solving trade disputes, and fishing rights. Formal talks are expected to resume either on Sunday or Monday.
Equities in Asia were also sharply higher as the Japanese Nikkei 225 index gained 5.87%, while in China the Shanghai Composite index and the CSI 30 index gained 2.2% and 3.4% respectively.
In a speech to business leaders, Bank of Japan Governor Haruhiko Kuroda confirmed his support for the central bank’s current monetary policy efforts, which have aided corporate financing and created stability in financial markets. While Kuroda acknowledged that Japan’s economy is in a severe situation due to the global pandemic, in part because of the recent resurgence of new cases in Europe and the U.S., he believes the economy has turned the corner and is picking up gradually after bottoming in the April-May period. The governor noted that Japan’s exports have started to increase, especially in automobile-related goods. However, domestic demand remained lackluster as business fixed investment has slowed because of the decline in corporate profits.
Despite some critics who have asserted that the central bank’s purchases of exchange-traded funds are distorting the equity markets, the BoJ has no plans to change the course of its purchases or trim those holdings. He added that ETF buying isn’t directly aimed at pushing up stock prices and that the buying helped prevent significant market swings that could hurt investor sentiment.
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.
The PMI index in China showed rapid recovery after the pandemic. Reports suggested that business leaders have high confidence in the government’s management of the economy. The manufacturing gauge of the purchasing manager’s index showed its highest level since 2011 and altogether showed that China’s strong economic momentum is continuing its path.