What a week. World markets went on a wild ride, as geopolitical tensions between the US and China, Brexit woes, broad valuation concerns, US political gridlock, and a stall in the decline of US jobless claims hampered investor sentiment. In the US, Democrats and Republicans have still not managed to agree on a stimulus package follow-up and the labour market remains the struggling part of the economy. In Europe, Brexit tensions took centre stage as talks between the UK and the EU resumed and floundered amid a loss of confidence on both sides. The ECB offered no concrete plans for further stimulus measures.
The market was closed Monday in observance of Labour Day. It was a holiday- shortened but highly volatile trading week with major stock indices falling for the second week in a row. Technology stocks experienced their worst pullback since March due to the possible effect of gravity on sky-high valuations. At the start of the week, the sell-off caused the Nasdaq Composite to officially drop in correction territory. Energy stocks also took a hit as crude oil prices dropped after Saudi Arabia cut prices to shipments to several Asian countries. The continuing lack of progress in Congress on a new stimulus package, signs of slowing progress in the labour market and festering U.S.-China tensions seemed to be weighing on sentiment. Jobless claims reports released on Thursday showed that claims are not falling as expected. Shares in Tiffany plummeted after luxury giant LVMH said it was delaying its $16.2 billion bid. The decision followed a demand from France’s Foreign Affairs minister and Donald Trump's threat to tax European imports.
Stocks in Japan advanced this week as the market seems to be looking for recovery plays. The benchmark Nikkei 225 Index rose 0.7% on Friday following a report that showed Q3 business conditions in the manufacturing sector unexpectedly improved. Softbank lost more than 10% over the week on a FT article suggesting the investment company had amassed call options on US tech stocks. In other economic news, consumer spending came in weaker than earlier projections, falling 7.6% year over year in July. Equities in Hong Kong and Shanghai sank taking their cue from the U.S. sell-off. Reports that the Trump administration was considering blacklisting Semiconductor Manufacturing International Corp (SMIC), China’s only leading semiconductor foundry also contributed to the negative sentiment. Shares of many Chinese technology companies fell on the news. Washington is also considering a ban on importing products containing cotton from Xinjiang. In Australia, the ASX registered four straight weeks of losses.
European equities resisted loss of momentum in the US and the pan-European STOXX Europe 600 Index ended the week 1.67% higher. Germany’s DAX Index jumped 2.80%, France’s CAC 40 advanced 1.39%, and Italy’s FTSE MIB spiked 2.21%. Spain was the only major European market to lose ground. Equities in the Old Continent shook off renewed fears of a hard Brexit, buoyed by better-than-expected economic data in Germany and the Eurozone and encouraging industrial production data, especially in the UK, France and Italy. In currencies, the euro remained strong, bolstered by a less-dovish monetary policy decision from the European Central Bank. The FTSE 100 Index gained 4.02% and the British Pound was among the worst-performing currencies amid heightened Brexit concerns.
Myriad problems persist. 400 million jobs have already been lost and the International Labour Organisation estimates that more than 430 million small enterprises are at risk. Meanwhile, the top 100 stock market winners have added more than $3 trillion to their market value since the Covid-19. The conclusion is yours to make!
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The content of this review is for informational purposes only and should not be interpreted as specific investment advice.