Week from 6 to 12 January 2020
Investors remained jittery at the beginning of the week, fearing a wider conflict in the Middle East after Iran launched a missile attack on two military bases in Iraq housing U.S. troops. The islamic republic claimed victory despite no U.S. casualties. In a first time, WTI oil futures spiked above $65 a barrel and gold prices hit $1,613 an ounce. Sovereign bonds also benefited from the flight to safety bid with yields on 10-year Treasuries falling to 1.7%.
However, Iran appeared to be standing down, especially after their supreme leader and president admitted they mistakenly shot down a Ukrainian passenger jet on Wednesday. Simultaneously, Trump opted to impose new economic sanctions on the country rather than call for further military action. Wall Street breathed again and safe-haven assets nose dived!
Rising hopes that both nations will seek to de-escalate tensions pushed large cap stock indices higher. The S&P500 gained 0.94% over the week though U.S. job growth slowed more than expected in December (nonfarm payrolls increasing by 145,000 jobs that month, falling short of the 164,000 forecast) ; the Nasdaq Composite rose 1.75% while the Dow Jones Industrial Average climbed 0.66%. Overall, Europe and Asia followed suit (Shanghai Composite and Nikkei225 rising by 0.28% and 0.82% respectively ; MSCI Europe up 0.50%). By contrast, small cap stocks edged down once again (Russell2000: -0.19% WTD, third negative week in a row).
Among S&P sectors, tech stocks led the pack (+2.17% WTD with Apple rallying 4.34%) along with communication services (1.98%) and healthcare (1.51%). Unsurprisingly, plummetting oil prices (WTI crude down 6.36%) took a toll on the energy sector (-1.07%).
With growing risk appetite (VIX index down 10.4% WTD), Treasury yields edged up slightly around the globe (from 1.80% to 1.83% for the U.S. 10-year yield, from -0.28% to -0.20% for the 10-year German Bund). IG corporate bonds fell by 0.38% in Europe and 0.29% in the U.S. while emerging debt continued its winning streak (+0.65 WTD in local currencies, sixth positive week in a row). High yield bonds managed to stay in positive territory (+0.09%).
Last but not least, it is worth noting that gold gained 0.5% ($1,560.10/Oz at close) though geopolitical tensions were fading.
Find the full report here: https://www.trackinsight.com/en/weekly-flow-report/2020-01-10/global