Read the 10 stories to remember from the week which ended August 28.
Story #1: Cautious Fed
On Thursday, Federal Reserve Chair Jerome Powell delivered (virtually) a long-anticipated speech at the Kansas City Fed’s Economic Policy Symposium, which is typically held in Jackson Hole, announcing the results of the central bank’s review of its monetary policy framework. Powell said that the Fed will adjust its inflation targeting to allow overshoots of its 2% inflation goal to offset undershoots of the target. This will effectively allow the Fed to keep rates at the current near-zero level for a longer period without raising them to prevent inflation.
Story #2: Positive Vaccine Sentiment
On Monday, news about the Food and Drug Administration’s approval of plasma treatment for COVID-19 patients and the Trump administration’s discussion of fast-tracking a potential vaccine from AstraZeneca and Oxford University led to a jump in stock prices for stocks which have been beaten down by the Pandemic and global lockdown, e.g airlines and aircraft part manufacturers stocks.
Story #3: Record highs for US equities
The NASDAQ extended its recent run of setting new record highs as it rose nearly 3%, outperforming the other major indexes. The S&P 500 set its own record on Friday, eclipsing its previous peak set six months earlier. The Dow finished the week little changed overall and was about 5% shy of its record. Higher-valuation growth stocks outperformed lower-priced value companies, extending the 2020 trend. Large-cap companies easily outpaced small-caps, as large information technology firms continued to drive the market’s upward momentum.
Story #4: Apple above $2 trillion
Apple’s market capitalization climbed above $2 trillion in intraday trading on Wednesday, marking the first time ever that the market value of a company’s total outstanding shares eclipsed that threshold. Shares of Apple climbed further on Friday, pushing its market cap to around $2.1 trillion.
Story #5: Treasury Yield Climb
U.S. Treasury yields increased, with much of the move coming after Powell’s statements on Thursday. The front-end of the curve remains anchored at very low yield while the longer-end steepened slightly. The dovish speech boosted investment grade corporate bonds and high yield at the expense of Treasuries, which investors widely view as a safe haven.
Story #6: Mixed US macro and micro economic numbers
Several major US retailers reported surging sales that exceeded analysts’ expectations. Among them was Target, which reported the largest quarterly sales growth in its 58-year history, with online sales driving much of the surge. On the macro-economic side, purchasing manager indexes showed that U.S. firms are seeing demand return as they reopen from coronavirus-related lockdowns. The housing market remains a positive catalyst as sales of existing homes surged nearly 25% in July relative to the previous month and nearly 9% from a year earlier, way above market’s expectations. Meanwhile, the job market continues to struggle as weekly total of U.S. unemployment claims climbed back above 1 million, with 1.1 million filings in the latest weekly count.
Story #7: European governments reject the idea of new national lockdowns
Despite renewed surges in coronavirus infections, France, Spain, and Italy appeared to reject the need for nationwide lockdowns to curb what could be a second wave of the pandemic. In France, the government said they would do everything to prevent a nationwide lockdown but warned that some regions might need to be isolated after cases quadrupled over the past month. In Italy, Health Minister said they are optimistic about keeping the situation under control. In Spain, Prime Minister Pedro Sanchez appeared to rule out a countrywide lockdown.
Story #8: Recovery plans in Europe
European shares rose on further economic stimulus in France and Germany, with the STOXX Europe 600 Index ending the week 1.02% higher. Germany’s ruling coalition extended a program to help keep workers on companies’ books and increased its funding by EUR 10 billion. Meanwhile, macro data showed that the German economy contracted at a record rate in Q2, although the initial estimate of a quarterly decline of 10.1% in GDP was revised up to a 9.7% contraction. German Ifo Institute’s business climate index rose to 92.6 from a revised 90.4 in July, beating a consensus estimate of 92.2. In France, Prime Minister Jean Castex said the planned EUR 100 billion recovery plan to be unveiled early Septembr would support SMEs and include cuts to commercial and industrial property taxes, local value-added taxes, and corporation taxes. The emergency program providing EUR 300 billion in state-guaranteed bank loans to businesses is extended.
Story #9: Japan’s Prime Minister Abe resignation
Abe, who has been prime minister since December 2012, said he is resigning because of declining health. Abe, who has served longer than any other prime minister in Japanese history, instituted a series of economic reforms during his time in office that were collectively known as Abenomics and were aimed at reinvigorating the Japanese economy. Abe’s successor will be chosen by the ruling Liberal Democratic Party (LDP). The Nikkei 225 Stock Average lost some ground on the news but the decline was moderate.
Story #10: A jump in China industrial profits
China industrial profits in July surged 19.6% over a year earlier in their fastest year-over-year growth since June 2018. However, cumulative profits for the year to date remain in negative territory. Profits at state-owned enterprises significantly lagged those at private and foreign-owned companies. The yield on China’s sovereign 10-year bond increased for the week amid further evidence of the strengthening economy. Mainland Chinese stock markets rose for the week as the blue-chip CSI 300 Index gained 2.7%.