Analytics, 30 May 2020
Week 22 in Brief
Major indexes
The major US stock indexes gained sharply for the week and the month.
- The Dow Jones Industrial Average finished 17.53 points, or less than 0.1%, lower at 25,383.11, but ended Friday well off its intraday nadir at 25,031.67. Meanwhile, the S&P 500 closed 14.58 points, or 0.5%, higher at 3,044.31. The Nasdaq Composite Index surged 120.88 points, or 1.3%, higher to end at 9,489.87.
- Stocks also booked sharp gains for the week and month. The Dow closed 3.8% higher for the week, while the S&P 500 gained 3%, and the Nasdaq notched a weekly advance of 1.8%. For the month, the Dow logged a 4.3% gain, the S&P 500 climbed 4.5%, while the Nasdaq marked a 6.8% return in May.
- Social-network companies are expected to remain in focus after Trump signed an order Thursday to review the liability protection enjoyed by the platforms after complaining about censorship.
European markets rallied in reaction to the EU’s 750 billion euro ($826.5 billion) recovery stimulus that seeks to bring the region out of what appears to be its worst economic crisis since 1930.
- European markets finished sharply lower on Friday with shares in London leading the region. The FTSE 100 is down 2.29% while Germany’s DAX is off 1.65% and France’s CAC 40 is lower by 1.59%. The pan-European Stoxx 600 provisionally closed down by 1.6%, but the index was still up over 3% since the start of May, on pace to register its second straight positive month following April’s more than 6% gain.
- The rally started on Wednesday when the EU announced a stimulus package, by the end of the week, the stimulus plan and U.S. jobs data seemed to outweigh US-China tensions. On Thursday, the pan-European Stoxx 600 closed up by 1.8% provisionally, with most sectors and bourses in the black.
- The stimulus came after Germany and France proposed last week to raise common European debt to support the region’s economic recovery from the coronavirus crisis.
- Chemicals were the best-performing sector, jumping 2.6%. On Monday, shares of heavily-weighted Bayer AG surged 8% after Bloomberg reported the company had reached deals with 50,000 to 85,000 U.S. cancer lawsuits connected to its weed killer Roundup. The cited sources said none of the deals have been signed yet. Bayer closed trading at 60,72 EUR on Friday.
Currencies
- The US dollar weakened against the euro as appetite for the euro gained due to improved risk from the EU stimulus package. The euro was headed for its best month since December as the stimulus package fueled optimism over the EU’s political future, as Germany and France worked together to support its approval. The Euro hit a two-month high of $1.1114 and last traded at $1.1106.
- The dollar further sank against a basket of currencies. The U.S. Dollar Currency Index, which measures the greenback’s strength against six other major currencies, was down 0.36% at 98.555, its weakest in nearly two months.
- The Chinese yuan weakened in offshore trade, mainly due to the tensions between China and the United States over the Hong Kong issue.
- A rally in the risk-sensitive Aussie dollar is slowing, but the currency has gained nearly 2% for the month and sits 20% above March lows.
Commodities
- Gold rose 1% on Friday as caution set in with investors awaiting U.S. President Donald Trump’s response to a Chinese national security law for Hong Kong and its potential impact on an already fragile global economy. Spot gold climbed 0.9% to $1,734.70 per ounce. U.S. gold futures settled up 1.4% at $1,751.70. Analysts expect to see safe-haven (gold) demand due to the uncertainty of the US-China tensions.
- In Oil, Brent crude fell 2.78% to $34.31 a barrel. U.S. crude fell 3.3% to $32.59 a barrel. Both contracts are headed for their biggest monthly gains in years as production cuts and optimism about demand recovery led by China supported prices.
- In bond markets, yields on benchmark 10-year U.S. Treasuries fell to 0.6705%, more than 100 basis points below where they began 2020.
In the news
- US-China tensions. Investors are keeping an eye on developments in an escalating war of words between the U.S. and China, with trade, the coronavirus pandemic, and now Hong Kong a focus in the dispute.
- The U.S. to end the preferential relationship with Hong Kong. President Donald Trump on Friday said the U.S. would end its preferential relationship with Hong Kong. The shift in Hong Kong’s status immediately jeopardizes several aspects of its relationship with the United States, which has been sparing Hong Kong from punitive tariffs from Trump’s trade war with China. U.S. Secretary of State Mike Pompeo told Congress on Wednesday that Hong Kong was no longer autonomous from China.
- US Economic Data. The U.S. trade deficit in goods increased by 7.2% in April, according to the Commerce Department’s advanced estimate. The gap in goods was $69.7 billion in April versus a revised $65 billion for March.
- The May Chicago Purchasing Managers Index fell to 32.3 in May from 35.4 in April. Any reading below 50 indicates worsening conditions. A final May reading on the University of Michigan’s consumer confidence index rose to 72.3 from an April level of 71.8. The Fed Chief Powell said the Fed has plenty of room to continue expanding its balance sheet and again pushed back on the idea of pushing interest rates into negative territory.
- New U.S. unemployment data signaled the worst of the economic damage from the coronavirus pandemic may be over. The Labor Department said another 2.1 million Americans filed for unemployment benefits last week, slightly higher than estimates. But the pace of new filings has dropped from previous weeks
- The US is exiting the WHO. US-China relations soared further Friday when Trump continued to blame the Covid-19 pandemic on China and announced the withdrawal of the United States from the World Health Organization (WHO).
Next Week?
- The stock market’s internal rotation into beaten-down names, like airlines and small caps, is expected to continue to be a theme in the week ahead as economies continue to reopen.
- Rising tensions between Washington and Beijing could become an increasing headwind for stocks, particularly the technology sector, which is most exposed on a revenue basis and through its supply chain.
- Investors will be also following the latest coronavirus news after the U.S.′ coronavirus death toll crossed 100,000. Dr. Anthony Fauci warned that states should not go “leapfrogging” over reopening guidelines.