Week from 22 to 28 June 2020
Despite better PMI data, the manufacturing and service sectors are still in contraction territory against a backdrop of surging Covid-19 cases.
U.S. and European markets flashed bright red Friday after Texas and California reconsidered their plans to fully reopen their economies and Dr. Anthony Fauci acknowledged that the Trump administration’s current testing strategy has proven inadequate.
The Dow Jones Industrial Average fell 3.3%, the S&P 500 slumped 2.86%, while the Nasdaq Composite gave up 1.9% even though the latter had reached a new all-time high on Tuesday. Small cap stocks performed in line with their large cap counterparts (Russell 2000 down 2.81%). Same trend in Europe with the MSCI EMU falling by 1.81%.
Overall, APAC equity markets did better even if they rounded off the week with mixed results: Australia -0.65%, Japan +0.15%, South Korea -0.31%, India +1.35%, China +0.40% and Hong Kong -0.38%.
All the S&P sectors were losing ground at the end of the week as investors’ hopes of quicker economic recovery were fading away. IT was the most resilient (only -0.45% WTD) as some of the tech giants continued to dominate (Apple up +1.12% after the company confirmed that it will start using its own chips in the next generation of computers, Amazon +0.67%, Microsoft +0.60%). Conversely, it is worth noting that Twitter and Facebook were severely hurt (-13.05% and -9.51% WTD respectively) by a growing advertising boycott from a number of big household names over their hate speech policies.
Among the 11 major S&P sectors, energy was the first decliner (-6.45%) due to the new fall in oil prices (WTI crude down 3.1%, at $38.49 per barrel), followed by financials (-5.26%) as the Federal Reserve put new restrictions on the U.S. banking industry, ordering the biggest banks, including JPMorgan Chase, Bank of America and Wells Fargo, to ban their stock buyback programs and cap dividend payments to shareholders. Communication services (-5.23%), industrials (-4.02%) and real estate (-3.97%) were also badly hit by the trend reversal.
Unsurprisingly, yields on Govies slid as the bearish sentiment was intensifying (10-year U.S. T-bond declining from 0.70% to 0.65%, 10-year Bund from -0.42% to -0.48%). Among safe haven assets, gold futures jumped to an eight-year high (+1.52% WTD). Investors plowed cash into the precious metal on persistent worries about a possible resurgence of inflation in the long run, due to massive stimulus programs in the U.S. even if the Fed has slightly reduced its balance sheet for three weeks.
By contrast, credit markets were under pressure with a rising divergence between investment grade corporate bonds (almost flat in the U.S., slightly negative in Europe: -0.14%) and high-yield bonds (-1.24% in the U.S., -0.43% in Europe) which showed mounting risk aversion.
Find the full report here: https://www.trackinsight.com/en/weekly-flow-report/2020-06-26/global
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