Week from 19 to 25 October 2020
Frustration is mounting as talks on a new stimulus package in the U.S. remain gridlocked. That said, how could it be anything but a political impasse when the Republican-controlled Senate is fiercely opposed to any bill exceeding $1trillion and the Democrat-led House of Representatives refuses to accept any deal below $2trillion?
Despite this deadlock and a continued increase in coronavirus cases around the globe, stock markets were quite resilient this week, thanks to positive corporate earnings releases. A vast majority of companies in the S&P 500 (> 80%) have indeed reported EPS above estimates, but it should be noted that Q3 2020 was marked by one of the largest year-over-year decline in earnings since 2008-2009 due to the COVID-19 crisis. Furthermore, the second and final presidential debate between Joe Biden and Donald Trump did not really change the picture, Biden being ahead of Trump in most national polls, with the odds still on the Democrats taking back the Senate.
Against this background, equity markets closed mixed amid persistently high volatility (VIX at 27.55, +0.51%). Overall, large cap stocks lagged behind their small cap counterparts. The Dow Jones Industrial Average fell -0.95%. The S&P 500 edged down -0.53% while the Nasdaq Composite lost -1.06%. By contrast, the Russell 2000 was up +0.41%.
The selling in the broader market was clearly led by tech (S&P IT sector down -2.21%, i.e. worst performer over the week). As an illustration, Intel tumbled by 11% after disappointing results. IBM stock slumped too (-7.88%) with the third straight quarter of decline in revenue. Among the Fab5, Apple and Microsoft fell by 3.34% and 1.56% respectively. Google-Alphabet (+6.93%) bucked the market trend though the U.S. Justice Department and 11 states filed a landmark antitrust suit against the company. Facebook (+7.09%) also helped to keep losses in check.
Communication services (+2.13%), utilities (+1.18%), financials (+1.03%) and energy (+0.52% though WTI crude oil was down 2.52% after a surprise climb in U.S. stockpiles) were the only sectors in positive territory.
European equity markets closed lower (MSCI EMU down 1.25%) as a result of the resurgence of COVID-19 cases that has led many countries to impose curfews or new lockdowns across the region, thereby closing many non-essential businesses. European Central Bank President Christine Lagarde said Monday that “the second wave of the pandemic in Europe, notably in France, and the resulting new restrictions are adding to the uncertainty and weighing on the recovery” (central scenario in the euro zone: GDP declining by an average of 8% in 2020).
In Asia, equity markets closed mixed in the reverse order to that posted last week (Shanghai Composite: -1.75%, S&P/ASX 200: -0.16% but NIKKEI, KOSPI and NIFTY 50 up +0.45%, +0.82%, +1.43% respectively).
On the interest rate front, yields on U.S. Treasuries bounced back (10-year T-Note at +0.85%). The yield of the German Bund on the same maturity rose from -0.62% to -0.58%. IG corporate bonds treaded water: -0.09% in Europe (-0.07% in the U.S.); conversely, high yield bonds rose slightly: +0.35% in Europe (+0.11% in the U.S.) and emerging debt recouped all the losses suffered last week (+0.83% in local currencies).
Lastly, gold edged up +0.06% though the EUR-USD pair traded higher (+0.97%).
Find the full report here: https://www.trackinsight.com/en/weekly-flow-report/2020-10-23/global
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