Read the 10 stories to remember from the week which ended October 9.
Story #1: U.S stocks see best gains in three months
The S&P 500 Index had its best weekly gain (+3.8%) in three months, as investors seemed to grow more optimistic about a new round of fiscal stimulus, as well as treatments for the coronavirus. We note that this was the biggest weekly short squeeze in 2 months as the 'most shorted' stocks have squeezed higher for 10 of the last 11 days. Best performing sectors were Utilities and energy, while Communication services shares lagged, weighed down by weakness in video gaming and cable stocks. Banks soared in their best week since June. U.S. small-cap stocks outperformed the broader market by a wide margin for the second week in a row, as the Russell 2000 Index, a small-cap benchmark, climbed more than 6%. At Friday’s close, the index was up 13% from a recent low on September 23.
Story #2: Stimulus hopes boost sentiment despite conflicting signals
Wall Street has been keeping a close eye over news about a new coronavirus relief package. While the news flow was confusing during the first part of the week, with both President Trump and House Pelosi’s delivering conflicting signals, events took yet another turn Friday afternoon following reports that the White House was upping its offer on the scale of a broad stimulus plan from USD 1.6 trillion to USD 1.8 trillion. The offer narrowed the gap with the USD 2.2 trillion bill that House Democrats passed on October 1, but the president later told a conservative radio talk show host that he was prepared to go even higher than the Democrats’ proposal. Though these measures are unlikely to take effect before the election, the resumption of coronavirus relief talks fueled optimism.
Story #3: Hopes rise for Covid-19 antibody therapies
President Trump’s seemingly rapid recovery following his COVID-19 diagnosis the previous week also seemed to boost sentiment. In videos recorded after returning to the White House from the hospital on Monday, the president attributed his recovery to the new antibody and antiviral treatments he received, while promising that they would soon be free and widely available to Americans. On Thursday, Eli Lilly announced that it was seeking emergency use authorization for its antibody therapy and planned to have a million doses available by late December. The news may have helped moderate concerns over a continued rise in daily new infections, in the U.S and in the rest of the world.
Story #4: U.S Bond yields touched four-month highs
The yield on the U.S 10-year Treasury note surged during the week and hit its highest level in four months. Rising stimulus hopes seemed to be partly behind the increase, with polls showing a widening lead for Vice President Joe Biden indicating the potential for a larger relief package in 2021. The U.S 30-year bond yield closed above the 200-day moving average for the first time since Q4 2018. We also note that the MOVE index, the equivalent of the VIX for U.S Treasury bonds, spiked the most in its history with a 45% surge in one day, albeit from abnormally low levels.
Story #5: European shares rose despite local lockdowns
European shares rose on hopes that the U.S. government would pass additional measures to stimulate the economy. The pan-European STOXX Europe 600 Index ended the week 2.11% higher, while Germany’s DAX Index rose 2.85%. Meanwhile, Brussels shuttered cafes and other drinking establishments for a month as part of a lockdown to counter soaring coronavirus infections and hospital admissions. COVID-19 cases continued to rise sharply in Spain, Italy, France, and the UK despite targeted measures to control the disease’s spread. France is ready to place more cities on maximum alert after the daily case count rose above 18,000 for a second consecutive day.
Story #6: UK and EU step up pace of post-Brexit trade talks
The UK and European Union stepped up meetings on a post-Brexit relationship ahead of a summit of EU leaders in Brussels next week. A senior EU diplomat cited by the Reuters news agency said the EU’s chief Brexit negotiator Michel Barnier wants a few more concessions before entering the “tunnel,” or the last phase of negotiations. Last week, UK Prime Minister Boris Johnson and EU Commission President Ursula von der Leyen agreed to carry on discussions for another month.
Story #7: Japanese stocks surged over the week, recording their best weekly return in about two months
The Nikkei 225 Stock Average advanced 2.6% over the week as the yen weakened. At the quarterly Bank of Japan (BoJ) branch managers meeting on Thursday, central bank Governor Kuroda asserted that Japan’s economy is starting to recover. The BoJ governor affirmed that fiscal and monetary stimulus measures have been effective, and he predicted that inflation would begin to rebound following a period of short-term weakness in oil prices. The BoJ also raised its outlook for eight of its nine economic regions and left the last (Shikoku) unchanged.
Story #8: Chinese Yuan surges most in 15 Years on expectations of Pro-China pivot if Biden is elected
China's onshore yuan, which was closed for trading during China's week-long Golden Week holiday, soared 1.4% on Friday as China returned to work and as the onshore yuan (CNY) caught up to the recent surge in the offshore yuan (CNH). At 6.6950, this is the strongest level for the onshore yuan since April 2019). According to strategist cited by the FT, traders in China on Friday were emboldened by the imminent possibility of a US administration that was more friendly towards Beijing. In addition to sentiment about Biden's pro-China agenda, the Chinese currency was also boosted by fresh signs the economy is improving after authorities controlled Covid-19 in the country. The Caixin China Service PMI showed activity climbed to its highest level in three months in September.
Story #9: Commodities surged
U.S. crude oil prices surged around 10%, climbing above the $40 per barrel threshold and recovering all the ground lost in the previous week’s sell-off. This was the best week for WTI since June. Oil prices were boosted after OPEC Secretary General Mohammed Barkindo claimed that “the worst is over” for producers. Gold, meanwhile, had its best day since August 17th on Friday, as the dollar had its biggest 2-week drop in 4 months. Copper also had a big rebound this week while Soybean futures soared to multi-year highs this week after export sales data, weather woes that threaten production, and technical buying.
Story #10: Bitcoin trades above 11,000 again after a bumpy week
It’s been a whirlwind week in the cryptocurrency world. There have been a rash of news items all pointing towards the same thing - attempts to rein in alternatives to the future of central bank digital currencies that are quickly creeping up over the horizon. It started with the CFTC’s indictment of the owners of crypto-exchange BitMex after more than a year of investigation last week. Bitcoin weathered that news item well, with last week’s volatility dropping off to next to nothing. On Friday, the market shrugged off news that the U.K.’ Financial Conduct Authority is banning the sale of all products that move with the price of crypto-assets. However, Bitcoin managed to gain and cross the $11,000 mark on Friday as Payment company Square said they bought $50 million in Bitcoin or 1% of Square’s total assets.