Market Commentary 23rd November 2020 from Charlie Hancock

Posted by melaniebond

Market Commentary 23^rd November 2020

Equity Indices

The FTSE 100 index rose by 0.56% last week, with gains for the large cap index hampered by a strengthening Pound Sterling. The FTSE 250 gained 1.23%. At the start of the week, more positive news regarding a Covid-19 vaccine lifted investor sentiment, which helped the FTSE 100 to reach its highest level since June. The optimism faded slightly as the week progressed, with investors considering the economic impact of lockdown restrictions this winter.

The US bio-technology company, Moderna, announced on Monday that a study has shown their vaccine to have a 95% efficacy rate. They also confirmed their vaccine can be stored for significantly longer at refrigerated temperatures than the Pfizer-BioNTech version, which should make distribution easier.

The news on Moderna’s vaccine pushed up share prices for businesses badly impacted by coronavirus restrictions. Cruise operator, Carnival PLC, saw their share price rise by 7.59% across the week, with airlines and other economically sensitive businesses, such as banks, also outperforming.

Europe

European equity markets were also lifted by the Moderna vaccine news in the first half of the week, before concerns around rising coronavirus cases and continued restrictions weighed on investor sentiment. Germany’s DAX index rose by 0.46% across the week. The broad FTSE All World Index – Europe ex UK saw a 1.54% rise, aided by relatively strong performance for Spanish and Italian equities.

The possibility of prolonged lockdown restrictions had a dampening effect in the 2^nd half of the week, after the initial optimism surrounding Moderna’s vaccine faded. The French government said that current measures would not be eased anytime soon, with President Emmanuel Macron due to deliver a speech in the coming days. Reports suggested that Germany could soon announce harsher restrictions, with chancellor Angela Merkel in favour of tougher measures.

US equity indices fared worse than their global counterparts last week, with the S&P 500 index declining by 0.77%. The Dow Jones Industrial Average lost 0.73% and the technology heavy NASDAQ 100 fell by 0.26%.

US equities rose on Monday following the Moderna vaccine news, but slipped into negative territory for the week as optimism faded. Covid-19 related restrictions were introduced in several states last week, with New York announcing on Wednesday that schools in the city would be closing.

Economic data added to investor concerns during the 2^nd half of the week, with new jobless claims rising for the first time in a month and October’s data for retail sales coming in weaker than expected.

Asia

The broad FTSE All World Index – Asia Pacific rose by 2.07% last week. China’s Shanghai Composite index gained 2.04% and Japan’s Nikkei 225 saw a 0.56% increase.

Headlines regarding a new trade deal between Asian countries helped to boost sentiment in the region last week. The deal between 14 nations including China, Japan, South Korea and Australia, will help form a free trade area covering 65% of goods traded in the region.

Chinese e-commerce giant, Alibaba, recovered from some of the previous week’s loss, rising by 3.79% across the week. Investors will be closely monitoring developments for Alibaba’s affiliate company, Ant Group, after a hotly anticipated stock market listing for Ant was postponed by Chinese regulators earlier this month.

Bond Yields

The 10 Year Gilt yield declined from 0.34% to 0.30%. Concerns around rising Covid-19 cases and the economic impact of restrictions across the winter prompted rising demand for government bonds last week.

Europe

The 10-Year German Bund yield moved further into negative territory, declining from -0.55% to -0.58%. Yields moved higher during the early part of the week, before a deterioration in investor sentiment resulted in demand for German government debt increasing.

The 10-Year Treasury yield declined from 0.89% to 0.83% last week. After moving close to the 1.00% level following the previous week’s Pfizer vaccine announcement, US treasury yields have gradually drifted lower, suggesting that investors are cautious on the near term economic outlook.

Currency

GBP / USD – Current 1.3275 Previous 1.3189

GBP / EUR – Current 1.1201 Previous 1.1153

The Pound moved higher against both the US Dollar and the Euro last week, gaining 0.65% and 0.43% respectively.

With the two sides still at loggerheads on fishing rights and state aid for companies, face to face negotiations between UK and EU officials were halted last week, after a senior EU negotiator tested positive for Covid-19.

Commodities

Gold

The Gold spot price continued to slide last week, losing 0.96% to reach $1,870.99 per ounce. Although the precious metal is often touted as a ‘safe haven’ asset, demand for gold appeared to decline throughout the week, even as investor sentiment deteriorated.

Oil

Oil prices were boosted by Moderna’s vaccine announcement, with oil traders hopeful that the roll out of a vaccine will prompt an increase in demand for oil. The Brent crude spot price gained 5.10%, climbing to $44.96 per barrel.