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Kristal Weekly Feed | 15 June 2020
These are tough times and it can get difficult to understand and analyze major events around the globe and how they affect your investments. In our weekly market update, we help you slice and dice the latest news updates to make informed investment decisions.
Headlines this week:
- Jay Powell’s stark message to the markets – Federal Reserve is right to rule out any near-term interest rate rises
- Fed’s Powell said “We are not going to have a V-shaped recovery, and the markets were priced to perfection in terms of how quickly things are going to turn around”.
- Coronavirus: Second US virus wave emerges as infections cross 2 million mark.
- Overall, virtually all of the major indices across the globe saw a retracement for the week.
Covid-19 now has 7,766,952 confirmed cases around the globe and the death toll is at 429,736.
Some positive news snippets:
- New Zealand clears its last COVID-19 case and will lift all coronavirus restrictions.
- Japanese drug-discovery specialist PeptiDream will have possible collaboration with U.S. drugmaker Merck & Co to develop COVID-19 therapies. The companies will work to create peptide therapeutics that may be effective against multiple coronavirus strains.
- Taiwan will further ease restrictions related to control of the coronavirus.
- Gilead Sciences, maker of the potential COVID-19 treatment Remdesivir, has been approached by U.K.-based AstraZeneca about a possible merger.
1. United States
U.S. markets saw an end to its 12-week long rally, with the S&P 500 falling 4.8% – its sharpest weekly decline since March. The rest of the U.S.’s major stock indices Nasdaq and Dow Jones each saw a weekly decline of 2.4% and 6.0% respectively. 10 Year Treasuries picked up to 0.70% from last week’s 0.67%. This comes on the back of the Federal Reserve’s assessment of U.S. economic prospects and rising Covid-19 cases in the western and southern states that have eased lockdown measures. Federal Reserve chair Jay Powell delivered a realistic prognosis for the American economy, with the central bank and Federal Open Market Committee expecting a 6.5% contraction in the U.S. economy this year, and an unemployment rate finishing the year at 9.3%.
Federal Reserve maintained their dovish message on interest rate, with Jay Powell indicating that the central bank has no plans to increase rates until at least 2022. “We’re not even thinking about thinking about raising rates,” he pointed out. Initial jobless claims slowed to 1.54 million in the past week as compared to 1.9 million in the week before that.
The number of confirmed coronavirus infections in the US topped two million on Wednesday, according to a tally by Johns Hopkins University Asia Pacific, bringing up fears of the emergence a second U.S. virus wave. Among the states that have reopened, Texas, California, Florida and Georgia has seen a resurgence of infections.
Central Bank forecasts a 6.5% contraction in the U.S GDP for 2020.
European stocks rebounded after biggest rout since March, which was driven by supply chain disruption and rising corona virus outbreaks in the U.S. The Stoxx Europe 600 index, SXXP, rose 0.28% to 345.06, after falling 4% on Thursday which was one of its largest one-day percentage decline since March.
European stocks had been largely supported by a $676 billion boost to Europe’s Pandemic Emergency Purchase Programme, bringing the coronavirus rescue package to a total of $1.53 billion.
Eurozone banks jumped 2.5% after European Central Bank officials are drawing up a scheme to cope with potentially hundreds of billions of euros of unpaid loans due to the coronavirus crisis.
Data indicates Euro Zone industrial output fell most on record in April due to lockdown which halted activities across the region and analyst projects an arduous recovery for the sector.
Asia Pacific saw a sell off nearing the end of the week, dragged along by the developments in the U.S.. The regional benchmark MSCI Asia Pacific now trades at 15x its forward earnings, an increase from its 11x in the March low. This pales in comparison and is only half of the expansion seen in the S&P 500’s forward price-to-earnings multiple of 22x before the week’s correction.
Japanese stocks continued their upward trend from the first week of June, with the Nikkei 225 Stock Average slipped 3.53%. In China, the Shanghai composite was declined around 0.76% while the Shenzhen component slipped a marginal 0.14%. Hong Kong’s Hang Seng index saw a correction of -2.86%. The Kospi resumed its weekly slide, falling 3.76%.
Chinese May inflation data missed expectations, with the Producer Price Index falling 3.7% from a year earlier, a larger decline than the expected 3.3%.
Formula One has added Japan, Singapore and Azerbaijan to the list of grand prix events cancelled this year owing to the coronavirus.
Heading into next week…
On Tuesday, we’ll be looking at the Fed’s semi-annual monetary policy report to the Senate Banking Committee. It is unlikely for Powell to deviate from Wednesday’s rate decision. Traders will also be paying close attention to the release of US retail sales data, which might show a rebound from the record low seen in April. On Friday, President Trump will return to the campaign trail in Oklahoma, his first live rally since March.
We will also be eagerly waiting for the Bank of England’s bond buying in response to the pandemic, with £100-200 billion added to its quantitative easing program.
The materials and data contained herein are for information only and shall in no event be construed as an offer to purchase or sell or the solicitation of an offer to purchase or sell any securities in any jurisdiction. Kristal Advisors does not make any representation, undertaking, warranty or guarantee as to the update, completeness, correctness, reliability or accuracy of the materials and data herein. All opinions, forecasts or estimation expressed herein are subject to change without prior notice. Kristal Advisors and its affiliates accept no liability or responsibility whatsoever for any direct or consequential loss and/or damages arising out of or in relation to any use of opinions, forecasts, materials and data contained herein or otherwise arising in connection therewith.
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