World markets were mostly in a sea of red this week and volatility remains high. Market participants aren’t expecting this turbulence to die down any time soon. Re-escalating tensions between the United States and China, elevated economic and political uncertainty, unemployment levels, Brexit concerns, the reestablishment of restrictions in some countries and the elusive US fiscal relief package continued to feed the bears.
The Dow and S&P 500 Index suffered a fourth-straight week of losses with the S&P 500, the bellwether of the large-cap US flirting with a 10% correction. The fall was led by the energy and materials sectors as commodity prices came under pressure. The financials sector was also weak. Jobs data came out worse than expected, with initial jobless claims up by 4,000 to 870,000. On the positive side, home sales surged 4.8% MoM in August U.S. Federal Reserve Chair Jerome Powell told Congress that the economy has a long way to go before it can fully recover. He added that the central bank will provide support as long as needed and that the path ahead “continues to be highly uncertain.” Furthermore, the likelihood of more US fiscal stimulus withered.
Japanese equities declined less than many others in the holiday-shortened trading week. The Japanese markets were closed on Monday and Tuesday for Respect for the Aged Day and Autumnal Equinox Day, respectively. Newly elected Prime Minister Yoshihide Suga and Bank of Japan (BoJ) Governor Haruhiko Kuroda held their first official meeting on Thursday and agreed to communicate and work closely together in policy management. A day earlier, Kuroda said the country’s economy is still in severe situation and the inflation target is too far to modify the current monetary policy. Chinese stocks fell with the benchmark Shanghai Composite Index and CSI 300 Index experiencing their biggest weekly loss since mid-July. China’s central bank left its loan prime rate, the reference rate for new bank loans, on hold for the fifth straight month, as expected. The yuan currency rose to its highest level in more than a year versus the U.S. dollar.
European equity markets underperformed other regions, as France, Spain, the UK, and the southern German state of Bavaria reimposed some coronavirus-related restrictions. Signs that the economic recovery may be stalling also weighed on stocks .Bank stocks tumbled on Monday on a report about $2 trillion worth of suspect transfers by leading lenders, including HSBC and Standard Chartered. In economic news, EU consumer confidence brightened in September but IHS Markit’s composite purchasing managers’ index (PMI) showed that the rebound in eurozone business activity faltered. Germany's Composite PMI was down to 53.7. Meanwhile, the German finance minister expects public debt to peak at 80% of GDP. In Brussels, the EU decided to grant Spain €1.2 billion to combat the current crisis.
World markets are pricing in the terrible state of the economy. “Each day from now until November is going to get more and more concerning, and more and more decisive, and more and more difficult,” Barry Diller, the former CEO of Fox and Paramount Pictures told CNBC this week and urged investors to save cash. Simply put: watch out, there are a lot of different unknowns out there.
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The content of this review is for informational purposes only and should not be interpreted as specific investment advice.