Market Commentary 28th September 2020 From Charlie Hancock

Posted by melaniebond

Market Commentary 28^th September 2020

Equity Indices

With investors in a risk-off mood for the majority of last week, most equity indices around the globe finished the week in negative territory. The FTSE 100 and FTSE 250 indices declined by 2.74% and 2.99% respectively.

Both major UK indices declined heavily on Monday, before regaining some ground during the remainder of the week. As headlines began to report that new restrictions would be imposed by the UK government to curb the spread of the coronavirus, some sectors suffered sharp declines.

Travel related stocks were the worst affected, with the British Airways parent company, International Consolidated Airlines Group (IAG), declining by 14.39% across the week. Whitbread PLC, which runs the Beefeater and Brewers Fayre chains, saw their share price fall by 6.27% last week as the government announced a 10pm curfew for restaurants and pubs. The prospect of further lockdown restrictions helped supermarkets to perform relatively well, with Sainsbury’s rising 1.15% and Morrisons seeing a slight decline of 0.63%.

Europe

Most European indices were firmly in the red last week. Rising coronavirus case numbers and concerns around a slowing economic recovery contributed to the risk-off sentiment, with investors ditching equities as result. The broad FTSE All World Index – Europe ex UK suffered a 5.84% fall and Germany’s DAX index declined by 4.93%.

The Spanish government recommended a city-wide lockdown in Madrid, however, the regional president appears to be resisting, with only some areas of the city currently subject to restrictions. France reported a record 16,096 new daily cases on Thursday. On the same day, the French President, Emmanuel Macron, announced the closure of bars and restaurants in some regions, with shorter opening hours for businesses in Paris.

After a difficult first half, US equity indices regained some ground to finish the week better than most of their global counterparts. The S&P 500 index lost 0.63%, the Dow Jones Industrial Average declined by 1.75% and the NASDAQ 100 index gained 1.96%.

The rise in European coronavirus cases was already weighing on sentiment, before a stark warning from Dr Anthony Fauci, the US infectious disease expert, prompted renewed investor concerns regarding the virus. During a senate hearing, Dr Fauci warned that the US is unlikely to develop herd immunity and said that he would not be surprised if new cases reach 100,000 per day.

After weeks of slow progress in negotiations for a fiscal stimulus bill, Democrats in the House of Representatives announced they were drawing up new proposals for a stimulus package of $2.4 trillion. Investor sentiment improved on hopes of the bill being passed before November’s presidential election.

Asia

The broad FTSE All World Index – Asia Pacific declined by 3.37% across the week and China’s Shanghai Composite Index fell by 3.56%. Japan’s Nikkei 225 index declined by 0.67% after re-opening from a national holiday which saw the Japanese stock market close for Monday and Tuesday.

The first official meeting between Japan’s new Prime minister, Yoshihide Suga, and the Bank of Japan’s governor took place on Wednesday. It was reported that Suga and governor Haruhiko Kuroda agreed to work closely together on policy management, continuing the approach set out under Prime Minister Abe’s tenure. In a news conference following the meeting, Mr Kuroda stated that the central bank intends to offer more support for businesses impacted by the pandemic.

Bond Yields

The risk-off sentiment present at the beginning of the week drove the 10-Year Gilt yield down to 0.16% on Monday, but this was reversed as the week progressed, leaving the 10-Year yield flat across the week at 0.19%.

Europe

The German 10-Year Bund declined further into negative territory last week, reaching -0.52% as the cautious mood prompted increased demand for German government debt.

US treasury yields declined across the week, with the 10-Year yield moving from 0.70% to 0.66%. Despite US equity indices rising sharply on Friday, the nervousness present during the first half of the week appeared to hold in the Treasury market, with the 10-Year yield moving lower on the day.

Currency

GBP / USD – Current 1.2746 Previous 1.2917

GBP / EUR – Current 1.0955 Previous 1.0908

The Pound declined by 1.32% against the US Dollar as the US currency bucked recent trends to strengthen against most major currencies. Sterling gained 0.43% against the Euro.

Commodities

Gold

Gold declined sharply last week, with the spot price losing 4.58% to reach $1,861.58 per ounce. The precious metal typically has an inverse relationship with the US Dollar and strength in the Greenback appeared to be the main driver for last week’s decline.

Oil

Oil prices reversed some of the previous week’s rise as oil traders focussed on the potential for rising coronavirus cases to hurt demand. The Brent crude spot price fell by 2.85% to finish the week at $41.92 per barrel.