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Weekly world markets review 05-09/10/2020

posted onOctober 10, 2020

Stocks gained across all major world markets this week. Politics and policy developments (specifically, fiscal and monetary stimulus) were the two forces in the driver’s seat. The mood was underpinned by reassuring news on the health of US President Donald Trump who returned to the White House from the hospital on Monday, anticipation that another US stimulus package will eventually be passed despite the negotiating charade and central banks determination to continue providing support for some time to come.

Spurred on by fresh optimism over a new stimulus package, major U.S. stock indices each rose more than 3%. The S&P 500 Index had its best weekly gain in three months. All the major S&P 500 sectors posted solid gains Friday, with Energy a standout as crude oil prices rallied sharply. Signs that White House officials and congressional leaders were bridging differences on measures to help airlines, small businesses, and households, made investors more confident that the bill would get finalized despite the shaky negotiations so far. Minutes from the Federal Reserve's Open Market Committee released on Wednesday showed that although the economy had recovered faster than expected, the pace could slow if there was no agreement on fresh stimulus.

In Canada, the S&P/TSX Composite Index gained 2.24% this week, once again lagging its US counterpart S&P 500. The energy sector contributed most to the Canadian index gain as oil prices were lifted by shut-ins ahead of Hurricane Delta. Oil stocks received an additional boost when OPEC Secretary General Mohammed Barkindo claimed that “the worst is over” for oil producers.

In Latin America, Mexico’s IPC returned 5.0% this week. Mexican President Andres Manuel Lopez Obrador announced a 297 billion peso ($14 billion) plan for infrastructure on Monday. The package deal, largely privately financed, includes 39 highway, port and energy projects and was the first of what business leaders say should be a series of investment announcements. In Brazil, the BOVESPA returned 3.69%.

Japanese equities jumped over the week, recording their best weekly return in about two months. The benchmark Nikkei 225 spiked 2.56%. The TOPIX and the TOPIX Small Index, broader measures of Japanese stock market performance, also recorded notable gains. The Bank of Japan (BoJ) Governor Haruhiko Kuroda warned on Monday that economic uncertainty regarding the Japanese economy is still "extremely high."

Stock markets in China were closed Monday through Thursday for the Golden Week holidays but rose on Friday. In economic news, China’s Caixin/Markit services Purchasing Managers’ Index for September came in at 54.8, above the 50 level that separates expansion and contraction, indicating the fifth straight month of improvement for the services sector.

The ASX enjoyed five straight session of gains, having its best week since April. The federal government unveiled fresh fiscal stimulus measures aimed at lifting the economy out of recession.

Every major European stock market was higher this week. In local currency terms, the pan-European STOXX Europe 600 Index ended 2.11% higher. The French economy rebounded 16% in the third quarter after an unprecedented almost 14% slump in the previous three months, the central bank estimated on Thursday. The EU Commission approved €1.7B for Italy's recovery and Economic Commissioner Paolo Gentiloni said that EU rules that set limits on government borrowing will remain suspended in 2021 as the 27-nation bloc strives to support a recovery from the recession. Meanwhile, Bank of Spain warned the crisis might be deeper than worst-case scenario.

UK stocks lagged other large European markets with the FTSE 100 Index climbing 1.94% as Brexit fueled uncertainty. Statements from both UK and EU officials made a no-deal Brexit at the end of 2020 look more likely.

The market knows that additional spending is coming but the negative economic reality suggests that market participants would do well to dial back bets on stimulus. The IMF warns of a “long ascent” to pre-crisis levels and the World Bank estimates that Covid-19 will add as many as 150 million extreme poor by 2021. Ballooning debts and deficits are hardly good ingredients for any economy to recover. Couple this with election turmoil and you have a pretty dismal mix.

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The content of this review is for informational purposes only and should not be interpreted as specific investment advice.