Market Commentary 2nd November 2020 from Charlie Hancock

Posted by melaniebond

Market Commentary 2^nd November 2020

Equity Indices

The FTSE 100 index fell by 4.83% during a difficult week for global equity indices. The FTSE 250 index declined by 4.94%.

Investor sentiment deteriorated throughout the week, with rising numbers of coronavirus cases prompting Germany and France to announce further lockdown restrictions. Investors began to speculate that other developed nations could follow suit in the near future, prompting stock market falls around the globe.

News of further lockdowns in Europe resulted in declines for airline stocks, with the parent company of British Airways, International Consolidated Airlines Group, seeing a fall of 11.52% last week. Online supermarket, Ocado, performed well in comparison to the wider market, registering a decline of 1.60% across the week.

Europe

European equity markets suffered heavy declines last week, with the announcement of lockdowns in Germany and France prompting a sell off. The broad FTSE All World Index – Europe ex UK fell by 7.40%, whilst Germany’s DAX index suffered a decline of 8.61%.

German Chancellor Angela Merkel announced on Wednesday that new lockdown restrictions would come into effect from Monday 2^nd November. Merkel cited difficulties in the track and trace system, stating that “on average, we no longer know where 75% of infections come from”. After reporting a record high of 52,000 new daily cases on Monday, French President Emmanuel Macron also announced new nationwide lockdown measures.

Delivery Hero, an online takeaway food delivery platform which is headquartered in Berlin, bucked the trend in DAX index companies last week, with its shares rising by 7.77%.

US equity indices suffered from the risk-off sentiment last week, with the S&P 500 falling by 5.64% and the Dow Jones Industrial Average declining by 6.47%. The technology heavy NASDAQ 100 index fell by 5.47%.

A combination of concerns around the economic impact of lockdowns in Europe, lack of progress on a fiscal stimulus package and mixed earnings results added to the volatility in US equities last week.

Around 85% of S&P 500 companies who have reported 3^rd quarter earnings so far have beaten expectations. As a result, investors have looked beyond headline results and sold off companies where the outlook is less optimistic. Facebook Inc released their Q3 results last week, which showed revenue 21.6% higher than during Q3 2019, but the number of active users in the US declined. Their share price fell by 7.61% across the week.

Asia

Asian markets performed better than their global counterparts last week, resulting in the broad FTSE All World Index – Asia Pacific posting a decline of 2.58%. China’s Shanghai Composite Index fell by 1.63% and Japan’s Nikkei 225 lost 2.29%.

With coronavirus case numbers in much of Asia under control, there are less concerns around the prospect of further lockdowns in comparison to Europe and the US. Last week saw Taiwan reach a record of 200 days without any domestically transmitted cases of Covid-19.

Chinese Technology giant, Tencent, saw its share price rise to new all-time highs, posting a gain of 5.25% across the week. The company’s share price is up by 54.55% in the year to date.

Bond Yields

The 10 Year Gilt yield moved slightly lower across the week, from 0.28% to 0.26%. The yield declined to below 0.22% in the middle of the week, before recovering on Thursday and Friday.

Europe

The 10-Year German Bund yield fell deeper into negative territory across the week, moving from -0.57% to -0.62%. A deterioration in sentiment prompted some investors to seek the security of German government debt, pushing yields down as a result.

A closely watched business confidence survey in Germany showed a decline for the first time since April, prompting fears of a double-dip recession.

The 10-Year Treasury yield rose across the week from 0.85% to 0.88%.

Nervousness amongst investors prompted heavy demand for Treasury stock during the early part of the week, pushing the yield down to 0.29% on Tuesday, however, the yield recovered during the remainder of the week.

Currency

GBP / USD – Current 1.2947 Previous 1.3039

GBP / EUR – Current 1.1123 Previous 1.0997

The Pound lost ground against the US Dollar last week, weakening by 0.71%. Sterling rose by 1.15% against the Euro, where concerns of lockdowns across the continent dragged the Eurozone currency lower.

Commodities

Gold

The Gold spot price declined by 1.22% last week to $1,878.81 per ounce. Despite a sell off in equity markets, the precious metal failed to find support, with its traditional ‘safe haven’ status brought into question last week.

Oil

Oil prices declined, with traders concerned that further lockdown restrictions will prompt falling demand over the coming months. The Brent Crude spot price fell by 10.32% across the week, reaching $37.46 per barrel on Friday.