Weekly market update : Indices grow faster than businesses

Thursday April 30

Weekly market update

Due to a holiday in several markets on May 1, the weekly market update is published today. With a strong rebound in oil, expectations of a resumption of economic activity, the continuation of ultra-accommodating monetary policies and hopes of a cure for Covid-19, financial markets had a very good week characterized by a series of sessions of sharp rises. Despite a sluggish macro-economy, traders regained their appetite for risky assets.

Indexes Over the past week, optimism has remained the order of the day and the major indices have all recovered. In Asia, the Nikkei gained 4.8% and the Hang Seng 3%. In Europe, the CAC40 made a weekly gain of 4.2%, driven by cyclical stocks. The Dax gained 5.4% and the Footsie 3%. The peripheral countries of the euro zone were not outdone, like the 4.9% recovered by Spain. Portugal took 4.2% and Italy 5.3%. In the United States, at the time of writing, the Dow Jones is up 2.6% since the beginning of the week, the S&P500 is up 2.8% and the Nasdaq100 is up 2.2%. Cyclical stocks bounce back

Commodities Oil prices, which have been depressed for many weeks, rebounded this week. The market is welcoming better-than-expected market data, including an increase in US inventories, less worries than expected and the beginnings of a significant drop in US production. WTI is thus back in contact with USD 17 a barrel, while the European benchmark, Brent, is gaining ground at USD 23.5. Investors' appetite for risky assets is not penalizing the price of an ounce of gold. The gold metal remains bullish and is trading close to its annual peak at USD 1715. Silver stands still at USD 15.3. As for the base metals, they are moving in scattered order. Copper and zinc rose to USD 5184 and USD 1930 respectively, tin and lead were flat and aluminum declined to USD 1464 per metric ton.

Equities markets Would you like some more tech ? It is sometimes annoying how often American Internet stars are talked about in stock market commentaries. But when the economy and markets waver, they have become the industries that investors cling to. The Covid-19 crisis only confirms this status, even though some of these companies are barely out of their teens: consider that Facebook was founded in 2004 and was only opened to the public in 2006. The quarterly results of Microsoft, Amazon, Alphabet and Facebook are obviously not immune to coronavirus, but they have all surprised by their vigour. More importantly, investors are almost giving these companies a blank cheque for their ability to adapt to any environment. By helping to improve morale, they are no strangers to the surprising resilience of indices despite the accumulation of negative macroeconomic indicators. At MarketScreener, we still have a soft spot for the "quiet force" of Microsoft, which, at the top of its 45 years, is still able to compete with the youngsters. Tech giants compared to the S&P500

Bond market The rapid easing of lockdown restrictions seems to have reassured bond markets in Europe, where rates are falling slightly. In France, the OAT, which finished last week at -0.027%, is now hovering around -0.060%. In Germany, the Bund lost 4.7 basis points (to -0.521%) from last Friday's close. The Italian construction sector also took advantage of this movement to drop 9.2 basis points to 1.798%. In the US, the 4.8% drop in GDP was offset by promises that the Fed will support the economy until full employment is restored. The US 10-year increase is therefore limited to 0.6 basis points, at 0.611%. A little further south, the Brazilian bond market is not experiencing the same stability. Accusations of interference in court cases against Jair Bolsonaro reawakened investor anxiety at the beginning of the week. The Brazilian 10-year had thus gone from 7.272% sell last week to 8.509% on Monday at the opening. It nevertheless ended the week at 7.458%.

Forex market At the end of a week punctuated by Fed and ECB meetings, the euro is back to black against the dollar. The single currency did indeed appreciate against a weakening US dollar due to a more risk-friendly environment. The euro is also benefiting from the accommodative policy of the ECB, which now accepts so-called speculative bonds as bank guarantees. The EUR/USD pair is thus trading at around USD 1.09. The Swiss franc lost ground in this weekly sequence, with the EUR/CHF pair gaining 400 basis points to CHF 1.056. For its part, the yen remains strong against the euro and against the dollar as the EUR/JPY and USD/PJY pairs are trading lower at JPY 115.8 and JPY 106.5 respectively.

Economic data Despite the increase in indices, statistics confirm the marked economic impact of the pandemic on activity. In Germany, import prices fell by 3.5% and retail sales by 5.6%. In France, GDP lost 5.8% in the first quarter. For the euro-zone, GDP declined 3.8% while the unemployment rate fell to 7.4% (7.7% previously). In the United States, the picture is broadly similar. Richmond's manufacturing index fell to -53, while the Conference Board's index fell to 86.9. US GDP fell by 4.8% in the first quarter (see chart), with home sales pledges falling by 20.8%. Household spending and income fell by 7.5% and 2% respectively. Traders will take note tomorrow of the ISM manufacturing and construction spending. Next week will be punctuated by the ISM Services, Industrial Orders, and all employment data, with the ADP survey on Wednesday and the monthly report at the end of next week. In Europe, there will also be the PMI manufacturing and services indexes. Evolution of US GDP

Indices grow faster than businesses As we pointed out in a previous newsletter, markets have entered a new era, that of paradoxes. This colorful week confirms the new rules that govern investors' choices. Watched from afar or under a magnifying glass, the markets seem to have abandoned all forms of rationality. The oil shock, dire world economic indicators, the lack of corporate visibility: nothing seems to dampen investor sentiment. "Bad news is good news" is the motto of these new times, which prohibits all forms of pessimism by inviting every operator to move away from Covid-19 to focus on the economic recovery that is taking shape at the end of the year. American indices retraced nearly 60% of their March decline, well ahead of the 50% retracement of the Stoxx Europe 600. Markets are reducing their 2020 losses and want to believe that Covid-19 will only be a short-lived event.