Weekly Market Commentary (October 05 – October 09)
Global Market Highlights
The S&P 500 benchmark index had its best rally in the past three months as news emerged about new stimulus as well as a potential treatment for the COVID-19 virus. Within the index, the utilities and energy sectors outperformed as oil prices rose as the OPEC Secretary General said that the worst for oil producers is over. Weakness in video gaming and cable network stocks weighed on the communication services sector.
The week was volatile as talks about new stimulus changed from one day to another. On Tuesday, President Trump said that he asked his representatives to stop stimulus talks until after the election, but he reversed his decision later that evening and said that he will support a stimulus package for airlines and small businesses as well as a $1200 direct payment scheme for individuals. On Friday, things changed again when the White House reported that they support a $1.8 trillion stimulus package, which narrowed the gap with the $2.2 trillion bill that the Democrats passed in the beginning of the month.
The president’s quick recovery also gave hope for a potential antibody for the virus, which seemed to boost sentiment. The president attributed his recovery to Regeneron’s antibody as well as Gilead’s Remdesivir treatments that he received. He also promised that these treatments will be free and available for all Americans soon. Some scientific experts were sceptical about the latter, but it showed that there is promise in treating the disease and even preventing infections.
Economic data was week during the week, but markets were optimistic. September’s PMI data exceeded or met consensus estimates which boosted sentiment. ISM’s gauge of service sector activity rose unexpectedly and marked the fourth straight month of solid expansion. Weekly jobless claims fell less than expected, but continuing claims fell sharply, from 12 million to 11 million.
For the week, all of the major indices rallied as the S&P 500 index gained 4.1%, the Dow Jones Industrial Average added 3.27%, while the tech-heavy Nasdaq Composite Index rallied 4.56%.
European markets closed the week with substantial gains as the Stoxx Europe 600 index gained 2.11%, the German Dax 30 index rose 2.85%, while the UK’s FTSE 100 index climbed 1.94%.
The across-the-board rise in COVID cases in Europe caused Brussels to close cafes, drinking establishments, beer halls, tea rooms, and other similar establishments for a month as part of new lockdown efforts. New cases continued to rise in Italy, the UK, Spain, and France as well despite additional lockdowns and targeted measures to control the spread of the virus.
Uk GDP rose 2.1% in August versus the 6.6% growth in July. The August number was less than half the consensus of estimates. Most of the expansion appeared to stem from a temporary restaurant subsidy and a boost in accommodation bookings, as people took holidays after the government eased lockdown restrictions. The Chancellor of the Exchequer announced targeted measures to support jobs in pubs, restaurants, and other businesses that had to close due to the imposition of tighter restrictions. The economy in France rebounded 16% in Q3 from a close to 14% contraction in the previous 3 months. Business activity has been picking up since the national lockdown ended in May.
Asian markets advanced higher during the week as the Japanese Nikkei 225 index closed the week 2.6% higher, while the Chinese Shanghai Composite index rose 1.7% and the large-cap CSI 300 index advanced 2%.
At the quarterly BoJ meeting, the central bank’s governor stated that the economy is starting to recover and affirmed that fiscal and monetary stimulus measures have been effective. He predicts that inflation would rebound following a period of short-term weakness in oil prices. The BoJ also raised its outlook for eight of its nine economic regions and left the Shikoku region unchanged. Japan’s policymakers believe that economic conditions remain severe but are gradually improving for most of the country as the impact of the coronavirus wanes and uncertainties abate.
Top executives at Japan’s three largest mobile phone carriers, SoftBank, Nippon Telegraph and Telephone, and KDDI, have discussed lowering their wireless rate charges with Communications Minister Ryota Takeda. He has made it clear that rate reductions of 10% were not sufficient and is urging for significantly larger price cuts to bring Japan’s rates in line with its global peers. While serving as chief cabinet secretary in 2018, newly elected Prime Minister Yoshihide Suga suggested that wireless phone rates could be cut as much as 40%.
In China, the services PMI jumped to 54.8 points from 54 points in August, marking the fifth straight month of improvement for the sector. Tourism revenue fell 30% on a YoY base and holiday passengers and road traffic fell steeply compared to last year. However, daily consumer spending during the holiday rose 4.7% from a year earlier.