Market Commentary 26th October 2020 from Charlie Hancock

Posted by melaniebond

Market Commentary 26^th October 2020

Equity Indices

The FTSE 100 declined by 1.00% last week, with the large cap index hampered by the Pound strengthening against the US Dollar. The more domestically focussed FTSE 250 index rose by 1.61%.

Despite rising coronavirus cases prompting headlines regarding the prospect of a ‘circuit breaker’ lockdown in England, investors were positive on some of the more economically sensitive sectors last week. Stronger than expected results from Barclays resulted in their share price rising by 9.57% across the week, lifting other companies in the sector, such as Lloyds (+8.40%) and HSBC (+5.94%).

News regarding the launch of a rapid 1-hour Covid-19 test at Heathrow airport helped airline stocks to rally. The parent company of British Airways, International Consolidated Airlines Group, rose by 13.80% across the week. Budget rival easyJet PLC gained 16.51%.

Europe

Equity indices in Europe declined across the week. The broad FTSE All World Index – Europe ex UK moved 0.37% lower, whilst Germany’s DAX index fell by 2.04%. Sentiment in Europe was impacted by data indicating the economic recovery may be slowing.

A Purchasing Managers Index (PMI) survey for the services sector showed that activity declined to a 5-month low during October. A survey for the manufacturing sector showed that activity continued to rise from September’s level. Services account for around 74% of the Eurozone economy, whilst manufacturing accounts for just 25% of economic output.

Swiss bank UBS reported stronger than expected third quarter results, with their share price rising by 7.06% across the week. Investor sentiment across the banking sector was positive, with Spanish banking group, Santander, rising by 6.95%.

All of the major US equity indices lost ground across the week. The S&P 500 declined by 0.53%, whilst the Dow Jones Industrial Average lost 0.95% and the NASDAQ 100 fell by 1.35%.

US indices were dragged lower by declines in heavyweight stocks such as Amazon (-2.09%), Microsoft (-1.56%) and Apple (-3.34%). Stocks in the communication services sector rallied across the week, with Google’s parent company, Alphabet, gaining 4.16% and Facebook climbing by 7.09%.

Streaming provider Netflix saw their share price fall by 8.01% across the week after releasing disappointing third quarter results. Profits were lower than expected and the closely watched subscriber count increased by 2.2 million, with analyst expectations being in the region of 3.6 million.

Asia

Equity markets in Asia were mixed, but the broad FTSE All World Index – Asia Pacific was in positive territory with a gain of 0.86%. China’s Shanghai Composite Index declined by 1.75%, whilst Japan’s Nikkei 225 gained 0.45%.

China released official Gross Domestic Product (GDP) figures for the third quarter, reporting economic growth of 4.9%. Chinese industrial output has now surpassed pre pandemic levels, providing further evidence of a ‘V’ shaped recovery.

A stronger Yen and positive data on Japanese exports helped the Nikkei 225 to rise across the week.

Bond Yields

The 10 Year Gilt yield rose across the week from 0.19% to 0.28%. With negotiations for a fiscal stimulus package in the US seeing some progress last week, government bond yields around the globe rose.

Europe

The 10-Year German Bund yield moved from -0.62% to -0.57%.

The European Union issued 10 and 20 year ‘social’ bonds last week to raise funds for a €100 billion package to support Eurozone employment. The EU issued bonds of €17 billion, but received bids of more than €233 billion, indicating strong demand for this type of asset.

The 10-Year Treasury yield climbed from 0.76% to 0.85% last week, reaching its highest level since early June. Lower than expected jobless claims, together with House Speaker Nany Pelosi suggesting that a stimulus deal could be signed “pretty soon” helped to drive yields higher.

The rise helped fuel optimism in the banking sector, which typically sees margins increase when interest rates climb.

Currency

GBP / USD – Current 1.3039 Previous 1.2915

GBP / EUR – Current 1.0997 Previous 1.1023

Positive comments on a UK-EU trade deal from both sides helped to drive the Pound higher last week, with Sterling rising by 0.96% against the US Dollar. It declined by 0.24% against the Eurozone currency, due to the Euro seeing strength against most major currencies across the week.

Commodities

Gold

The Gold spot price declined by 0.35% across the week to $1,902.05 per ounce. Although expectations of US policymakers reaching a deal for further fiscal stimulus improved last week, it appears that investors in Gold have already priced in a large stimulus package.

Oil

Oil price slipped across the week, with the Brent crude spot price declining by 2.70% to $41.77 per barrel.

With coronavirus cases rising globally and the US reporting a 3-month high of 70,000 cases on Thursday, oil traders priced in reduced global demand.