Market Commentary 30th November 2020 from Charlie Hancock

Posted by melaniebond

Market Commentary 30^th November 2020

Equity Indices

UK equity indices lagged their global counterparts last week, with the FTSE 100 rising 0.25% and the FTSE 250 declining by 0.23%. Both indices experienced a strong bounce on Tuesday, with investors encouraged by news of the formal process for Joe Biden’s transition to the White House commencing. Sentiment was also aided by Prime Minister Boris Johnson confirmed that the current nationwide lockdown restrictions would end on the 2^nd December.

AstraZeneca published efficacy results for its Covid-19 vaccine on Monday, showing it to be 90% effective. The announcement had little impact on markets, with investors seemingly focussed on the more effective results released earlier this month from the Pfzier-BioNTech and Moderna trials. AstraZeneca shares declined by 6.58% across the week.

Europe

After slipping during Monday’s session, European equity indices rose throughout the remainder of the week. The broad FTSE All World Index – Europe ex UK gained 2.23% across the week, whilst Germany’s DAX index rose by 1.51%.

Hopes of a smooth transition for President Elect Joe Biden aided sentiment in Europe last week. News that the European Central Bank (ECB) will allow Eurozone banks to commence dividends again in 2021 also added to the risk-on mood.

Investors appeared to shrug off weakness in a Eurozone Purchasing Managers’ Index (PMI) survey, which indicated a sharp contraction in the services sector this month. Germany announced an extension of the current lockdown restrictions until the 20^th December, with chancellor Angela Merkel warning that they may be extended again until February 2021.

The technology heavy NASDAQ 100 index led the way for major US equity indices last week, posting a gain of 2.95%. The S&P 500 gained 2.27% and the Dow Jones Industrial Average rose by 2.21%. The Dow made headlines on Tuesday after reaching 30,000 points for the first time in history.

Investors were encouraged by reports of Joe Biden considering former Federal Reserve chair Janet Yellen for the position of Treasury Secretary. Yellen was in favour of loose monetary policy during her tenure at the Fed and investors took this as a sign that further monetary and fiscal stimulus is likely in 2021.

President Trump tweeted that he was authorising formal transition measures for the Biden administration to take office. Whilst Mr Trump is yet to formally concede the election, investors reacted positively to his tweet, with expectations for a smooth handover improving.

As the date for inclusion in the S&P 500 index draws closer, electric car maker, Tesla Inc, saw their share price reach new all-time highs, gaining 17.32% across the week. Investors appeared to be unphased by Tesla recalling 870 cars in China, due to a fault which can cause parts of the roof to fall off.

Asia

Japan’s Nikkei 225 was the standout index in the region last week, rising by 4.38%. China’s Shanghai Composite index gained 0.91% and the broad FTSE All World Index – Asia Pacific rose by 2.20%.

Despite coronavirus infections in Japan reaching record levels, with new daily cases exceeding 2,500, investors were in a cheerful mood. President Trump allowing transition arrangements for Joe Biden’s administration to take office appeared to aid sentiment. Japan’s economy is highly sensitive to global trade and Biden is expected to take a softer approach to international trade relations in comparison to President Trump.

Investors appeared relatively unphased by reports of several Chinese state-owned companies defaulting on loans, with strong economic data outweighing concerns around rising defaults. Shares in the Chinese e-commerce giant, Alibaba, rose by 6.38% across the week as investors reacted positively to a conciliatory tone from the company’s CEO. Daniel Zhang described plans for tougher regulation on Chinese internet companies as “timely and necessary”.

Bond Yields

The 10 Year Gilt yield moved slightly lower across the week, falling from 0.30% to 0.28%. The AstraZeneca vaccine announcement appeared to drive yields higher at the start of the week, before concerns around economic growth during the 2^nd half of the week caused yields to decline.

A Purchasing Managers’ Index (PMI) survey for November reflected the difficulties facing the service industry during the national lockdown, with activity contracting for the first time in four months. The survey indicated that the manufacturing sector continued to expand. UK Chancellor Rishi Sunak unveiled spending plans for 2021, which indicated that public debt would rise to 91.9% of Gross Domestic Product (GDP).

Europe

The 10-Year German Bund yield was unchanged across the week at -0.58%. Bund yields displayed a similar pattern to Gilts, rising early in the week following positive vaccine news, before moving lower again. As well as weak PMI data for the region, expectations for further stimulus from the ECB drove down yields across the Eurozone.

The 10-Year Treasury yield moved slightly higher across the week, gaining 1 basis point to reach 0.84%. US bond markets appeared to shrug off higher than expected jobless claims, with investors focussed on the week’s political developments instead.

Currency

GBP / USD – Current 1.3311 Previous 1.3275

GBP / EUR – Current 1.1127 Previous 1.1201

The Pound gained 0.27% against the US Dollar, with the greenback losing ground against most major currencies. Against the Euro, the Pound moved 0.66% lower.

Commodities

Gold

The Gold spot price declined by 4.45% last week to reach $1,787.79 per ounce. After surpassing the $2,000 mark briefly in August, the precious metal has been in a downtrend which has intensified during recent weeks. Positive news regarding a coronavirus vaccine appears to have driven investors away from Gold and into equities.

Oil

Oil prices moved sharply higher last week, with the Brent crude spot price gaining 7.16% to reach $48.18 per barrel. Oil traders continued to price in increased demand during 2021, with hopes of increased travel following the recent vaccine news. It appears that oil traders are expecting OPEC members to agree on continued production cuts at their upcoming December meeting.