Week in Review: Optimism Outweighs Geopolitical Tensions

Despite escalating tensions between the U.S. and China - with this week focusing on President Trump placing restrictions on Chinese social-media apps including TikTok and WeChat - global markets recorded solid gains. The technology-heavy Nasdaq Composite Index recorded fresh new highs and the S&P 500 Index is within 1.2% of its all-time high, recorded in February this year. A combination of better-than-expected economic data, improved prospects of a COVID-19 vaccine and hopes for more U.S. stimulus underpinned markets.

Tensions between the U.S. and China are rising notably ahead of the phase-one trade talk review to assess the nations’ trade agreement. Talks are expected to take place on or around Aug. 15, six months after the agreement was originally signed. This week President Trump threatened to ban TikTok unless the China-based app is acquired by a U.S. company (Microsoft is currently in talks to purchase the company). On Thursday, Trump escalated his threat into an executive order, calling the wide use of Chinese apps a "national emergency." Trump followed the TikTok ban with a similar executive order for WeChat, a messaging app owned by Chinese giant TenCent. This comes after China has fallen far behind its purchase commitments on agriculture and energy products from the United States.

On the economic front, this week’s busy economic calendar appeared to play some part in supporting sentiment. U.S. manufacturing and non-manufacturing data came in ahead of expectations. Equally, the U.S. labor market continued to regain ground in July. The U.S. unemployment rate now stands at 10.2%, after peaking at 14.7% in April.

Turning our attention to Europe, business activity also strengthened throughout July. Services PMI climbed to 54.7 (above 50.0 signals an expansion), compared with a reading of 48.3 (contraction) in the prior month. Manufacturing PMI increased to 51.8, compared with a level of 47.4 in the previous month.

In the UK, the Bank of England (BoE) voted unanimously to hold the benchmark interest rate unchanged at a record low of 0.1% and the asset purchase programme at GBP745 billion, as expected. Central bank Governor, Andrew Bailey, did however warn that the UK economy would take longer to recover from its COVID-19 slump than it previously forecast.

Equity markets posted a strong week of gains. In the U.S., the Dow Jones (+3.80%), S&P 500 (+2.45%) and Nasdaq (+2.48%) were all positive, whilst the Euro Stoxx 50 (+2.48%), FTSE 100 (+2.28%) Nikkei 225 (+2.86%) and Shanghai Composite (+1.33%) Indices were also all stronger. The gold price hit an all-time high of $2059.09 on Thursday after surging past the psychological $2,000 an ounce threshold earlier in the week. Gold is now up more than 30 percent this year.


Market Moves of the Week

South Africa’s ban on alcohol sales has put investment projects worth at least 12.8 billion rand on hold. The likes of South African Breweries,  glass manufacturer Consol Holdings Ltd, Heineken NV and wine and spirits maker Distell Group Holdings Ltd. all announced plans to halt spending in the country. These announcements are a blow to President Ramaphosa’s drive to lure $100 billion in new investment to South Africa by the end of 2023.

Meanwhile, South African electricity production in June fell by 5.8% on a YoY basis and electricity consumption dropped by 4.9%, both highlighting the slowdown in the local economy.

The JSE All Share Index ended the week up +1.86%, led higher by the resource (+6.10%) and industrial (+0.22%) sectors. Financials (-2.54%) along with the rand sold off during the week with the rand trading at R17.63 to the U.S. Dollar by Friday close.

Market Moves 9 Aug 2020

Chart of the Week

The probability for a Covid-19 vaccine has significantly improved in recent weeks. As the chart of the week shows, the "superforecasters" now see a 78% probability that 25 million doses of an FDA-approved vaccine will be available by September 2021, compared to just 35% at the beginning of June. Currently, there are a large number of industry-sponsored vaccines in development, several of which have already begun Phase III trials. Historically, approval odds of a Phase III vaccine have been 79%.

Chart of the Week - 9 Aug 2020

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