Global Fundamental Analysis 01/06/2020

Australian Market

Australian shares closed 1.6% lower at 5756.0 amid concerns over tensions between the U.S. and China.  The S&P/ASX 200 traded lower throughout the session following a late sell-off on Wall Street. But the benchmark index still closed out a fifth straight weekly gain, rising 4.7%.

Financial stocks led losses, falling 3.6% as banks gave up some of the gains made early in the week as economies began reopening and investor appetite allowed National Australia Bank to increase the scale of its capital raising.  Consumer staples, tech and utilities were the only sectors to finish in positive territory.

US Market

The S&P 500 edged, notching a second consecutive week of strong gains and its best two-month performance since 2009.  Investors have been encouraged in recent weeks by signs of states and businesses around the country reopening, helping stocks rebound from their March lows.

The S&P 500 and Dow Jones Industrial Average both climbed more than 4% in May, building on April’s robust rally when the indexes posted their best monthly percentage gains since 1987. The two-month rally has cut the indexes’ losses for the year to 5.8% and 11%, respectively.

The rally was initially led by shares of big technology companies, which helped the Nasdaq Composite outperform. The tech-heavy index rose 6.8% in May and is up 5.8% for 2020.  But the market’s leadership has shifted over the past two weeks, and the latest leg of the rebound has been underpinned by shares of companies that were considered laggards just weeks ago.

Investors have turned to shares of financial companies and cooled toward the tech giants, for now. Financial companies in the S&P 500 jumped 6.6% this week, while the
information-technology sector inched up 1.2%.  To many observers, the climb in value stocks like financials, which typically trade at low multiples of their book values, is a sign that investors are bracing for a broader economic recovery ahead.

Commodities

Gold futures, meanwhile, rose for Friday’s session buoyed by U.S.-China tensions and global monetary stimulus measures.  Meanwhile, August gold rose $23.40, or about 1.4%, to $1,751.70 an ounce. Gold tacked on 3.4% for the month.  Among other Comex metals, July copper rose nearly 0.5% at $2.4255 a pound but prices,
based on the most-active contracts, logged a monthly rise of around 4%, according to FactSet data.

Oil Futures

U.S. benchmark oil prices staged a late-session rally to close 5.3% higher to a 12-week-high $35.49 a barrel on hopes the U.S. and China will remain important trading partners even as the two countries bicker over issues such as Hong Kong and the coronavirus.

President Trump spoke today and did not mention a plan to quit the Phase 1 portion of a U.S.-China trade deal. Crude’s late rally also suggests investors are willing to shrug off some recent, bearish oil data and believe instead the global economy will continue a slow recovery from coronavirus.  WTI has now risen for five straight weeks.

Forex

The U.S. dollar weakened 0.3% against the euro and strengthened 0.2% against the yen, while the WSJ Dollar Index fell 0.2% following President Trump’s Rose Garden
announcement.

European Markets

European stocks closed lower amid jitters about a potential further deterioration in U.S.-China relations.  The Stoxx Europe 600 dropped 1.4%, the FTSE 100 fell 2.3% and the CAC-40 and DAX were both down 1.6%.

Asian Markets

Mainland Chinese stocks ended the session higher after mixed trading, when Beijing approved the controversial national security law widely seen as a move to undermine Hong Kong’s semi autonomy. All three benchmarks rose, with the startup-heavy ChiNext Price Index increasing the most, settling 1.5% higher at 2086.67. The Shanghai Composite Index added 0.2% to 2852.35, while the Shenzhen Composite Index was up 1.0% at 1786.51. Consumer stocks led the rise, with tourism and entertainment sectors outperforming.

Japanese shares closed lower, dragged by declines in auto and electronics stocks, as concerns grew over U.S.-China trade relations ahead of President Trump’s press conference later in the day. Nissan Motor fell 11%, Mitsubishi Motors dropped 9.0% and Canon lost 3.9%. The Nikkei Stock Average declined 0.2% to 21877.89.

South Korean stocks edged higher in mixed trade, with the benchmark index Kospi rising 0.1% to close at 2029.60. The index gained 2.0% over the week. Banking, auto and shipbuilding stocks led the gains while airline and tech shares declined.