Market Commentary 5th October 2020 From Charlie Hancock

Posted by melaniebond

Market Commentary 5^th October 2020

Equity Indices

The FTSE 100 index climbed by 1.02% and the FTSE 250 index gained 2.06%. Most of the week’s gains came on Monday, with encouraging data from China and hopes of a Brexit deal lifting investor spirits.

Greggs PLC announced that they plan to cut jobs in the coming weeks, with sales declining during September. The bakery chain said that its high street stores are struggling, but plans to push ahead with 20 new stores before the end of the year. Although it slumped in the wake of the announcement, across the week their share price gained 9.74%.

HSBC performed strongly across the week, rising by 9.72% after Chinese insurer, Ping An, increased their shareholding in the banking group to 8%. In recent weeks, some have speculated that China could sanction HSBC in response to them assisting the US government with investigations into Chinese tech giant Huawei. Ping An’s decision to increase their holding in HSBC was viewed as a sign that sanctions are unlikely.

Europe

European markets gained across the week, with the broad FTSE All World Index – Europe ex UK rising by 2.65%. Germany’s DAX index rose by 1.76%.

The number of new daily coronavirus cases remained close to their all-time highs in France and Spain. As a result, the Spanish government ordered tighter restrictions in Madrid, with residents prohibited from leaving the city. Restaurants, bars and gyms must now operate with 50% capacity and observe an 11pm curfew. The French health minister said that Paris is likely to be put on ‘maximum alert’, which could mean that bars and restaurants will be ordered to close.

All of the major US equity indices posted gains across the week. The S&P 500 index rose by 1.52%, the Dow Jones Industrial Average gained 1.87% and the NASDAQ 100 climbed by 0.94%.

Negotiations in US congress for a new fiscal stimulus package continued throughout the week, with hopes of a deal being reached lifting investor sentiment. Republicans are calling for the latest proposal from the Democrats for a $2.2 trillion package to be scaled back, with reports last week suggesting that Republicans would be willing to approve a package of $1.6 trillion.

US equity indices declined on Friday after President Trump announced that he and his wife had tested positive for Covid-19. Investors became nervous about the uncertainty caused by President Trump contracting the virus, given the proximity of November’s presidential elections.

Asia

Markets in Asia saw mixed performance last week. The broad FTSE All World Index – Asia Pacific gained 0.67% across the week. The Shanghai Composite Index posted a decline of 0.04% during a shorter trading week, with China’s stock market closed for a week’s national holiday from Thursday. It was also a shorter week for Japan’s Nikkei 225 index, which posted a loss of 0.75%. The Tokyo stock exchange suffered an unexpected outage on Thursday, forcing a day’s closure for the first time since 1999.

Chinese Purchasing Managers’ Index (PMI) readings for September were strong, with the services sector recording its highest reading since November 2013. The reading for the manufacturing sector was also encouraging, with an increase in exports helping to drive sentiment higher. The data suggests that China is continuing to experience a strong economic recovery.

Bond Yields

The 10-Year UK Gilt yield rose from 0.19% to 0.25% on Friday. With Bank of England officials downplaying the likelihood of negative interest rates and investor sentiment positive for most of the week, gilt yields climbed higher.

The Bank of England’s chief economist, Andy Haldane, suggested that current conditions do not justify negative interest rates. This echoed comments a day earlier from Dave Ramsden, the Bank’s deputy governor, who said that he does not believe negative rates would be effective.

Europe

German government bonds declined across the week, with the 10-Year Bund moving from -0.52% to -0.54%. The decline in Bund yields indicated that investors remained cautious, with rising coronavirus cases in Europe weighing on sentiment.

The 10-Year US Treasury yield rose across the week from 0.66% to 0.70%. Renewed optimism surrounding a fiscal stimulus bill appeared to drive investors away from Treasuries and into riskier assets such as equities.

Currency

GBP / USD – Current 1.2935 Previous 1.2746

GBP / EUR – Current 1.1042 Previous 1.0955

The Pound strengthened last week, with hopes of a Brexit deal being reached this month boosting optimism on Sterling. The Pound rose by 1.48% against the US Dollar and 0.79% against the Euro.

Commodities

Gold

Gold recouped some of the previous week’s loss, with the spot price rising by 2.05% to reach $1,899.84 per ounce. A rising US government deficit typically erodes confidence in the US Dollar, which is supportive of Gold. As a result, last week’s reports suggesting that a fiscal stimulus deal could be close are likely to have driven Gold prices higher.

Oil

Oil prices slipped across the week, with the Brent crude spot price falling by 6.32% to $39.27 per barrel. Sentiment deteriorated sharply on Friday after President Trump announced that he had contracted the coronavirus, with oil appearing to be one of the worst affected assets. Whilst there is no direct correlation between the President’s health and demand for oil, traders will be concerned that the news will heighten general concerns about the spread of the virus.