Adam Vettese, UK Market Analyst at eToro, has provided his daily commentary on traditional and crypto markets for September 7, 2020.
The FTSE and Dax have come out of the starting blocks strongly this week, up 1.2% and 1.4% respectively. This follows last week’s heavy selling in the US, with futures signalling more losses for the Nasdaq down 1.5%. The US market is closed for Labor Day today.
Shares in China and across the Asia-Pacific region were weaker, with China’s CSI 300 index down 0.3% per cent and Japan’s Nikkei off 0.5%. Hong Kong’s Hang Seng was also down 0.3%, although Australia’s S&P/ASX 200 managed to reverse losses to close up 0.3%.
It comes after a mixed Friday in the US. On the upside, the Labor Department’s jobs report showed the US unemployment rate fell to 8.4% in August from 10.2% a month earlier. Nonfarm payrolls, a measure of workers excluding farm workers and some other classifications, increased by 1.37 million in August. Economists had anticipated the unemployment rate to come in at 9.8% with 1.32 million nonfarm payrolls added, so the figures point to a faster than expected rate of recovery in the US. The payroll numbers received a significant boost from government hiring, as 328,000 census workers were added during the month, while local government employment jumped by 95,000. Although the unemployment rate remains elevated, The WSJ noted that it is now in line with previous major recessions. The better-than-expected figures were not enough to stop US markets from falling again on Friday, with 10 out of 11 S&P 500 sectors in the red.
Volatility index hits highest level in more than two months
All three major US indices posted substantial losses last week, most of which came during Thursday’s sharp sell-off. The Nasdaq Composite closed out the week 3.3% lower, while the S&P 500 was down 2.3% and the Dow Jones Industrial Average fell 1.8%. On Friday, the CBOE Volatility Index – a measure of investors’ short-term volatility expectations – hit its highest level in more than two months. In a Friday note, investment firm T. Rowe Price said that its traders had concluded much of the selling last week was likely due to investors deciding to take profits, rather than any change in fundamentals. They added that increased volatility has been driven by investors using options to try and take advantage of potential market gains. On Friday, the Nasdaq sank 1.3%, with PayPal, Adobe and Alphabet (Google) among the fallers. Tesla enjoyed a small rebound, to the tune of 2.8%, after being punished for much of the week but then fell more than 7% in after-hours trading.
S&P 500: -0.8% Friday, +6.1% YTD (-2.3% last week)
Dow Jones Industrial Average: -0.6% Friday, -1.4% YTD (-1.8% last week)
Nasdaq Composite: -1.3% Friday, +26.1% YTD (-3.3% last week)
Rolls Royce sinks 13% in tough week
Similar to the US indices, both the FTSE 100 and FTSE 250 fell more than 2% last week. The FTSE 100 is now down 23.1% year-to-date, including a 10.6% loss over the past three months.
Homebuilders and property development firms were among the biggest losers in the FTSE 100 on Friday, with Barratt Developments, Persimmon and Taylor Wimpey all closing between 5% and 7% lower.
Rolls Royce faced the toughest week, however, losing 13% after reporting a record loss and providing a dire short-term outlook. The demise of global air travel due to the pandemic has led to airlines cancelling orders of new planes and has badly hurt demand for Rolls Royce’s engines. Rolls Royce stock is now down 68.2% year-to-date and more than 70% over the past 12 months.
The biggest winner in the FTSE 100 last week was turnaround specialist Melrose Industries, as the company said that, despite rough first-half results, performance in some of its key business units has been at the higher end of expectations. Melrose stock finished the week 9.5% higher.
FTSE 100: -0.9% Friday, -23.1% YTD (-2.8% last week)
FTSE 250: -0.6% Friday, -20.7% YTD (-2.4% last week)
