Last week’s market movements summarised
A continued recovery in stock markets was anticipated last week as they rallied the week before following the positive news of a coronavirus vaccine by Moderna, Pfizer, and BioNTech. This was followed by Oxford University-AstraZeneca also declaring they too may have a vaccine ready for the end of December. Furthermore, oil closed at an eight-month high on Tuesday, the highest since March. This was due to optimism following a surprise decline in U.S. crude supplies as well as the breakthrough for a Covid-19 vaccine, and hopes of an increase in global demand in the coming months.
This positive movement was however dampened by the UK’s Chancellor of the Exchequer Rishi Sunak on Wednesday as he delivered his Spending Review. He stated that Britain's debt is expected to equal approximately £400 billion, which would total debt at just over 100% of GDP, by 2021 and that the UK economy is anticipating an 11.3% fall in GDP this year - the worst recession in 300 years due to the coronavirus pandemic. Given this latest forecast, the markets reacted by dropping from recent highs.
It can also be expected that the recent increase in the COVID-19 cases in the US will continue to rise before Thanksgiving and will cast a dark shadow over global stock markets in the days and weeks to come.
FTSE100
Gains were made for the FTSE100 at the beginning of last week, hitting five-month highs on Tuesday, following the previous week’s surge in shares due to vaccine optimism alongside the beginning of Joe Biden’s formal transition to President. A weak spot amongst the recovery is in the aerospace sector which is yet to experience an improvement in trading conditions with sales down 37% in the four months to October 31. This is the result of continued travel restrictions across the globe.
Towards the end of the week, there was less of a positive spell with the FTSE100 opening flat on Thursday given the announcement due that day on the new tier restrictions as well as Rishi Sunak’s grim pronouncements on the economy the day prior. The index was later down 31 points (0.5%) at 6,360. This improvement in the markets was resuscitated with the nation’s capital being put into tier 2 lockdown conditions rather than tier 3, leading to a rise in shares with strong ties to the capital.
S&P500
The S&P500 hit an all-time high last week with investors rallying to buy economically sensitive financial and energy stocks. The S&P value index is calculated to have gained approximately 11% just this month, having underperformed all year. This was fuelled by the latest positive coronavirus vaccine news coupled with the formal transition of Joe Biden to president.
The S&P500, however, slumped slightly on Wednesday with U.S. banks, JPMorgan Chase & Co and Citigroup, falling between 0.5% and 1.7% in premarket trading. This comes as weekly jobless claims unexpectedly jumped to 778,000 for the week ending Nov. 21, compared to 748,000 in the previous week suggesting that the labour market recovery was halting. With an increase in COVID-19 cases in the US it can be expected for this slowdown to continue.
DAX
At the start of last week, Germany’s Dax along with other European stocks rose further, with some heading for a record monthly gain. On Tuesday, the DAX erased losses on investor optimism by turning positive for the year. This coincides with the recent breakthrough in the joint Oxford University-AstraZeneca coronavirus vaccine trials as they are close to mass-producing a vaccine with 70% efficacy by the end of the year. The reduced political uncertainty in the U.S. has also filtered its way through to German stocks as President-elect Joe Biden begins his formal transition process.
Furthermore, it was announced this week by German exchange operator Deutsche Boerse that Germany’s DAX Index will be undergoing a large overhaul as a result of the Wirecard accounting scandal. The index will grow to 40 companies from the current 30 with harsher membership criteria and new quality controls. This will improve the quality of the DAX indices and regulate them under international standards.
Asia-Pacific
This week was a mixed bag for Asia-Pacific stocks. The week started on a positive note as stocks indexes in Japan, South Korea, Australia, and New Zealand, rallied on vaccine optimism. Stocks further rallied following the election of former Federal Reserve Chair Janet Yellen as Treasury secretary by Joe Biden as well as the Trump administration finally making federal resources available for his transition into office.
A weakness, however, amongst these stock increases was in airline shares in Hong Kong and Singapore. Cathay Pacific declined 4.21% whilst shares of Singapore Airlines fell by 0.49%. This was the result of an anticipated air travel bubble between Singapore and Hong Kong being delayed for two weeks as Hong Kong is currently experiencing a recent increase in coronavirus cases.
Towards the middle of the week, this positive spell didn’t last as the Shanghai Composite index was down 1.19% at 3,362.33 on Wednesday at close and was the biggest slump within a day since Oct. 30. The Shenzhen component also fell 1.773% to about 13,656.09 whilst MSCI’s index of Asia-Pacific shares outside Japan slipped 0.37%. This dip coincided with a report published by Reuters stating that China’s state planner has encouraged local governments to start investigating new energy vehicle projects to make sure they abide by legislation.
Spotlight on Pets at Home
The coronavirus pandemic has inflicted a fair share of hardship on companies across the globe particularly in the travel, leisure, and hospitality sectors given the restrictions and lockdowns put in place by national governments. One firm in the UK that has fared better than most is Pets at Home.
Given their classification as an essential service, Pets at Home’s 451 stores and 440 vets stayed open throughout lockdown, allowing them to perform better than most other retailers and maintain their revenue. This, accompanied by a rise in pet ownership throughout the first national lockdown, has allowed Pets at Home to fight off the worst economic effects of the pandemic. The Chief executive Peter Pritchard stated that he views Pets at Home’s success to be down to the emphasis on the importance of companionship for people stuck indoors amid the Covid-19 crisis. As a result, there was an increase in demand for pets and thus for pet maintenance products and health care.
In the half-year to October, sales for Pets at Home jumped 5% to £574 million and shares opened on Tuesday at 417p, which has doubled year to date.
Conclusion
The past week has been a mixture of positive and negative movements in the markets with further developments in the race for a coronavirus vaccine but also an increase in the number of coronavirus cases across the globe. Continued fluctuations in the markets will be expected in the weeks to come.