Week from 3 to 9 February 2020
After the selloff in the second half of January, stocks bounced sharply in early February, helped by the ISM’s monthly business survey, where the U.S. Manufacturing PMI showed activity rising to 50.9, its highest print since July. This reading came in better than the market expectation of 48.5. However, all the evidence suggests that the new coronavirus may take a toll on Chinese businesses, leading to a slowdown in the global economy. Hence the stimulus of $21.7bn injected by China’s central bank to aid companies hit by the outbreak. Although fears of a pandemic disease have not really receded, equity markets have proven resilient in the face of the deadly virus so far.
The Dow Jones Industrial Average was up 846 points, or +3%, while the S&P500 climbed 3.17% and the Nasdaq Composite surged 4.04%. The VIX fell below 15.5 (-17.9% WTD). The other stock markets around the globe also enjoyed the recovery week (MSCI EMU: +3.96%, MSCI EM: +2.76%, Nikkei: +2.68%) with one notable exception: Chinese markets which reopened on Monday after having been closed one week (Shanghai Composite down 3.38%).
Only one S&P sector was in the red: utilities (-0.63% WTD) which had benefitted from the flight to quality over the past two weeks. Overall, the other sectors rebounded strongly (more specifically, technology: +4.47% with Microsoft’s recently announced results that sent the stock soaring to record high levels (+8.02% WTD), materials: +4.22% though Caterpillar, a bellwether of global economic activity, fell at the end of the week, and healthcare: +3.93%). Energy also managed to finish in positive territory (+0.76% WTD) even if the oil prices continued to tumble (WTI crude down 2.4%), U.S. crude futures market shrugging off reports of deeper production cuts by OPEC and its allies.
Safe haven assets dropped in the wake of bullish equity markets. Thus the 10-year U.S. Treasury yield rose from 1.51% to 1.59% while the 10-year German Bund yield edged up from -0.43% to -0.39%. Investment grade corporate bond prices declined on both sides of the Atlantic (-0.17% in Europe, -0.38% in the U.S.). By contrast, high yield bonds looked brighter (+0.42% in Europe, +0.70% in the U.S.). Emerging debt remained virtually unchanged over the week (-3bps).
Find the full report here: https://www.trackinsight.com/en/weekly-flow-report/2020-02-07/global