Top financial market stories of the week
Monday 31st August 2020-Friday 4th September 2020
1. India’s economic growth plunges by 23.9% — Monday
India saw its worst quarterly contraction on record, with a 23.9% fall in GDP for the April-June quarter (Q1), as per provisional estimates released by the Ministry of Statistics and Programme Implementation. The country is now officially in a recession. This is the first instance of an economic contraction for the country in at least four decades, and also the first GDP decline since India began publishing growth data on a quarterly basis in 1996, according to The Business Standard. India’s economy had grown by at 3.1% in the January-March quarter (just before lockdown was imposed), its slowest pace in at least eight years.
Data revealed that the construction industry was worst hit with a contraction of 50.3%, followed by the trade, hotel, transport, communication segments, which contracted 47%. Agriculture and allied activities turned out to be the only silver lining, which registered a 3.4% growth during the quarter. The mining sector contracted 23.8%, while the manufacturing industry fell by 39.3%. The financial services sector registered a contraction of 5.3%. The government expenditure, as represented by public administration services, also contracted 10.3%.
2. FTSE 100 sees largest daily drop in three months — Tuesday
Britain’s FTSE 100 suffered its biggest daily losses in three months on Tuesday. The index fell 2.2% on the first day of the month, when trading resumed after the long weekend. UK stocks have lagged well behind the recovery in global and US stocks in recent months. Neil Wilson, chief market analyst at Markets.com stated that a rising pound despite Brexit concerns has “crippled earnings expectations and therefore share price appreciation in the big foreign earners,” with companies like Shell, HSBC and Unilever reliant on global income.
There were also similar declines in Europe. The pan-European STOXX 600 index had opened 0.3% higher on the first day of the month after its best August since 2009. But the index was down 0.4% as markets closed in Europe, with travel and leisure stocks down 2.5%. The DAX carved out gains of 0.2%, but France’s CAC 40 also shed 0.2%.
3. Australia falls into recession for first time in 28 years — Wednesday
Australia’s economy has suffered its sharpest quarterly drop since the Great Depression due to the pandemic, with official data released on Wednesday confirming the country is experiencing its first recession in 28 years. Data showed that the economy shrank 7% in June, the biggest contraction since records began in 1959. The economy experienced a 0.3% decline in the March quarter of the year. Treasurer of Australia, Josh Frydenberg said: “Today’s national accounts confirm the devastating impact on the Australian economy from COVID-19…Our record run of 28 consecutive years of economic growth has now officially come to an end.”
The country has seen more than a million people lose their jobs since March, with entire sections of the economy shut down. The government has injected A$300bn (£162bn) of stimulus with the central bank cutting rates to a record low of 0.25% in March but the latest figures — which were worse than expected — could add pressure to take further action
4. Germany holds its first green bond sale — Wednesday
Germany raised €6.5 billion from the 10-year bond, with more than €33 billion worth of bids from investors. Germany’s green debt plan differs from peers such as France and the Netherlands in that each green bond sold will be matched with a twin, i.e. a conventional bond. Once the bonds have been sold, investors will be able to swap their green bonds for the conventional equivalent at any time, a structure designed to alleviate fears that smaller, less liquid green securities would trade at a lower price.
Green bonds are fixed-income instruments which raise capital for new and existing projects which deliver environmental benefits and contribute to a more sustainable economy. ‘Green’ can include renewable energy, sustainable resource use, conservation, clean transportation and adaptation to climate change. Issuance of green bonds has significantly increased in recent years, and a total of $263bn of this type of debt was sold last year. Germany’s green bond programme will involve up to €12bn in issuance this year, across a range of maturities from two to 30 years. This issuance from Europe’s largest economy is likely to help establish a benchmark for pricing other green transactions.
5. US stocks hit fresh records — Wednesday
US stocks rallied on Wednesday, with the Dow Jones rising above 29,000 for the first time since February and the S&P 500 and Nasdaq Composite hitting new records. The S&P 500 advanced 54.19 points, or 1.5%, to 3580.84, setting its 22nd record close of 2020. The Dow Jones climbed 454.84 points, or 1.6%, to 29100.50, its highest close since 20th February. The Nasdaq Composite rose 116.78 points, or 1%, to 12056.44, its 43rd record close of the year. Including Wednesday, the S&P 500 has closed higher in nine of the past 10 trading days.
Stocks rose despite a Federal Reserve report showing on Wednesday that US growth and job gains are slowing. The Fed’s beige book survey of economic conditions highlighted “rising instances of furloughed workers being laid off permanently as demand remained soft,” especially in the hard-hit services industries. A separate report also released on Wednesday from private payrolls firm ADP said the US private sector added 428,000 new jobs in August, a third of the amount expected by analysts. This shows there is a severe disconnect between markets and the real world, mainly fuelled by low interest rates.
6. US tech stocks reverse sharply — Thursday
Stock markets have lost some of the record gains made over the past several months, as investors sold off tech companies and showed worry over the continuing crisis in the US labour market. The Nasdaq Composite index tumbled almost 5% in its biggest fall since June. The Dow Jones Industrial Average fell 808 points, or 2.78%, after passing 29,000 for the first time since February on Wednesday. The S&P 500 was down 3.5% and the tech-heavy Nasdaq fell 4.9%. Both the S&P 500 and the Nasdaq had set their latest record highs a day earlier, and the latter index is still up nearly 28% for the year.
According to the Financial Times, Apple’s shares lost 8%, wiping more than $150bn from the iPhone maker’s value. Amazon, Alphabet and Microsoft all fell more than 4%. Several other stocks which have performed spectacularly during the pandemic, such as Tesla and Zoom Video Communications, suffered even steeper drops, dropping 9% and 10% respectively. This also led to the Vix index, a measure of the S&P 500’s expected volatility to jump above the 30-point mark for the first time since mid-July.
7. German industrial demand remains weak — Friday
Orders for German industrial goods rose by a weaker-than-expected 2.8% in July, indicating a slower recovery is more likely for Europe’s largest economy. The rise compared with a Reuters forecast for a 5.0% gain on the previous month. June figures were revised up to show an increase of 28.8% from 27.9% previously reported, the Federal Statistics Office said on Friday. Domestic industrial orders fell by 10.2% on the month in July but orders from abroad were up 14.4%, the Statistics Office said. ING economist Carsten Brzeski said the figures showed “an enormous twist between domestic and foreign demand”.
Earlier in the week, German retail sales fell unexpectedly in July, further dashing hopes of a strong recovery for the economy in the third quarter. Retail sales were down by 0.9% on the month in real terms in July after a revised drop of 1.9% in June and a 13.2% jump in May, when authorities eased lockdown measures. DZ bank economist Michael Holstein said, “The disappointment among German retailers is likely to have been great: The VAT cut on July 1 did not lead to the hoped-for increase in sales, at least in the first month.”
Where did markets finish at the end of the week?
- The FTSE 100 closed at 5,799.08, declining by 2.76% over the week.
- The FTSE 250 closed at 17,354.28, declining 2.44% over the week.
- The Nasdaq closed at 11,313.13, declining 3.27% this week.
- The S&P 500 finished at 3,426.96, declining 2.31% this week.
- Japan’s Nikkei 225 finished at 23,205.43, gaining 1.41% this week.
- The Shanghai Composite finished at 3,355.37, declining 1.42% this week.