Improving data lifted world markets this eventful week. US stocks made strong gains, European equities were all higher and Chinese assets advanced as signs of continued recovery in the US, Europe and China brightened investors’ mood. The week also marked the end of the third quarter, when Asian equities returned over 10%, US equities delivered nearly 9% and European 2%.
The major U.S. stock indices rose 1% to 2%, breaking a string of four weekly losses, as economic data was mostly better than expected. September consumer sentiment improved much more than projected, factory orders rose for a fourth-straight month and the unemployment rate for September fell to 7.9% from 8.4% the previous month. The political environment also seemed to play a large role in driving sentiment over the week. The first debate between US President Donald Trump and his Democratic rival Joe Biden took place on Tuesday, the House of Representatives voted in favor of a fresh stimulus package, this time for $2.2 trillion on Thursday and Trump tweeted that he and First Lady Melania Trump had contracted COVID-19. Markets drifted lower on Friday and finished a turbulent September down 4%.
Japanese stocks declined in the four-day trading week. A technical problem forced a full-day trading halt on Japan's stock exchanges, including the Nikkei 225 index on Thursday, freezing buying and selling in thousands of companies. The failure was the first all-day stoppage of trading since the Tokyo Stock Exchange shifted from the open-outcry trading pit to a fully-electronic system in 1999. In China, stronger data lent support to Chinese equities in a holiday-shortened week. Manufacturing and services PMIs (official and unofficial) all surpassed expectations, indicating the recovery was on track. However, stocks ended September with their biggest monthly loss since May 2019. China’s stock markets are closed from Oct 1-8 Golden Week holiday.
Stocks in Europe rebounded as eurozone’s economic confidence rose for the fifth straight month, according a report from the European Commission. The mood among European consumers improved in September compared to the previous month. Other news boosting stocks included eurozone’s manufacturing PMI rising to 53.7 in September, stronger retail sales in Germany (up 3.1% m-o-m in August) and falling unemployment in Germany and Italy. However, Eurozone’s unemployment rate was up to 8.1% in August and German firms are planning to cut at least 80,000 jobs in 2021, business daily Handelsblatt reported on Tuesday, citing its own research. On the positive side, Germany's manufacturing PMI reached a 26-month high in September. In the UK, the FTSE 100 Index added 1.02% this week, despite news that the European Commission launched legal proceedings against the UK over its behavior in Brexit negotiations.
We have now entered the final three months of an unprecedented year. Political risk for markets has risen but by January, we should know the outcome of the US election, whether a no-deal Brexit was avoided, whether US Congress has passed further fiscal stimulus and many more.
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