Weekly Market Commentary (February 01– February 05)

 

Global Market Highlights

  • Democrats moved ahead on $1.9 trillion stimulus

  • Vaccination speeds up in the UK

  • Eurozone GDP shrinks less than expected

  • State of emergency extended to March 7 in Japan

US Markets

Major US equity indices rallied for the week, recouping previous week’s losses, helped by fiscal stimulus plans and optimism about vaccination. The S&P 500, Nasdaq Composite index, and the Dow Jones Industrial Average all reached record highs, while energy stocks outperformed after domestic oil prices hit their highest level in more than a year due to a surprising drawdown in US crude reserves. Earnings week was powering ahead full steam as 112 companies reported their Q4 performance from the S&P 500 index.

The market closely watched how the Biden administration will decide upon the $1.0 trillion stimulus proposal. Starting Tuesday, the President met with Republian Senate leaders to discuss a compromise as the Republicans proposed a relief bill totalling $618 billion. On Friday, the Senate passed a budget resolution moving forward legislation authorizing the full $1.9 trillion President Biden had requested.

The week’s economic data surprised mostly to the upside. The ISM’s gauge of services activity reached 58.7 points, its highest level since 2019. Data suggests that the expansion in the services sector has matched that in the manufacturing sector. Weekly jobless claims fell more than analysts expected and dropped to 779,000. The Labor Department reported that employers added 49,000 new jobs in January , which was in line with expectations.

For the week, major indices rallied. The S&P 500 index gained 4.49%, the Dow Jones Industrial Average rallied 3.66%, while the Nasdaq Composite index jumped 6%.

European Markets

Shares in Europe rallied as hopes for a quicker economic recovery grew. European Stoxx Europe 600 index ended the week 3.5% higher. In Germany, the Dax 30 index gained 4.6%, while in the UK, the FTSE 100 advanced 1.3%. In Italy, the FTSE MIB index rallied more than 7^ after Mario Draghi was given a mandate to form a new government.

The pace of vaccinations in Europe remained slow, but picked up in the UK, where more than 10.5 million people have received their first dose of the vaccine. Furthermore, the number of daily coronavirus infections also started to fall in some countries after a month of strict lockdown measures across Europe. Poland is the first nation in the EU to begin reopening its economy, allowing its hospitality industry to start operating from the middle of February.

In Q4, the eurozone’s economy contracted less than expected as GDP fell 0.7% QoQ and 5.1% on a YoY basis. Within the EU, France’s and Italy’s economies contracted the most, while in Germany, the GDP rose by 0.1% and 0.4% in Spain. The Bank of England  said it expected the UK economy to recover quickly this year and return to its pre-pandemic size by 1Q22. The central bank lowered its forecast for economic growth in 2021 to 5% from the 7.25% it predicted in November, but raised its estimate of 2022 GDP growth to 7.25% from 6.25%.

Asian Markets

Asian markets rose with global markets as the Japanese Nikkei 225 index gained 4%, while in China the Shanghai Composite index gained 0.4% and the large-cap CSI 300 advanced 2.5%.

In China, sentiment improved following reports that Chinese e-commerce leader Alibaba Group, which has been the target of unfavorable regulatory actions, reached an agreement with regulators over the restructuring of its fintech affiliate Ant Group, whose record $34.4 billion IPO was canceled in November. In Hong Kong, a record oversubscription by retail investors for the $5.4 billion IPO of Kuaishou Technology revealed huge investor appetite for Chinese tech companies. Shares of the video app company surged 161% in its Hong Kong public trading debut on Friday, making it the largest internet IPO since Uber went public in 2019.

As the Lunar New Year is approaching in China, Beijing and several other major cities have tightened travel restrictions and testing requirements. During normal circumstances, about 280 million migrant workers travel home from their place of work for the celebration and its economic impact lasts about 40 days . This year, the number of trips will drop by 60% to 1.2 billion, which is the lowest number in 18 years.