Sentiment improved for global financial markets last week, leading to most equity indices ending in the green. Coupled with better than expected economic data coming from the US, indices paused marginally lower than record highs as the week ended. After a stellar run, Gold experienced some profit taking activities and ended the week at around USD1,950 per ounce, but remains one of the top performers of the year.
In the News
- Covid-19 have continued its rapid spread, with case numbers approaching 22 million worldwide. However, case numbers in the US have started showing a downward momentum, contributing to the positive market data, despite the number of daily deaths reaching a three-month high last Wednesday.
- It was a good week for US data as retail sales continued to rebound in July, and have now exceeded its pre-pandemic levels. Inflation data has also been better than expected, attributed to the return of household demand in the country.
- Following another week of gains, the US’ S&P 500 Index came close to a record high last week, closing 0.4% below its record low. The NASDAQ Index saw a slight gain from last week’s record high, as tech giants Apple, Microsoft, Amazon, Facebook, and Google recorded an average of 68% gains since the end of March.
- Tech-focused NYSE FANG+ Index rose 1.73% over the week, but the 0830EA, which aims to provide 2x the daily performance of the index, rose 3.32% in MYR terms over the same period.
- US Congress failed to reach an agreement, leaving the unemployed Americans without the additional benefits they had earlier enjoyed through the Coronavirus Aid, Relief, and Economic security (CARES) Act which ended in July. Analysts forecasts that this could lead to a 4.5% drop in personal income for US citizens, in which retail spending will be most affected.
- Geopolitical tensions between US and China opened up a new round of trade discussion as the week ended before being postponed. In this round of discussions, both governments are expected to review the implementation of the bilateral trade agreed upon in January, which promised to boost US imports in exchange for a cut in tariffs imposed on Chinese products. Ahead of the trade discussions, President Trump slightly loosened his executive order on the ban on the Chinese app TikTok, although the attack on Chinese tech giants is expected to continue.
- The Chinese market remained flat throughout the week in anticipation of its trade discussion with the US, coupled with slower than expected credit growth, reflecting a loss in excessive liquidity due to a recorded drop in short-term borrowings.
- The long awaited inclusion of tech giant Alibaba into the Hang Seng index was announced last Friday, recording one of its largest revamps in history. The HSCEI will also include the Chinese tech giant, along with Xiaomi and Meituan, a move that is expected to take effect on 7th September.
- The HSCEI index , which serves as the underlying index for the 0832EA and 0833EA, outperformed majority of its peers last week to gain 2.6% as the Shanghai Composite Index gained 0.58%, whilst the CSI300 Index slid 0.33% in MYR terms over the period. The better showing of the tech and consumer sector helped nudge the 0829EA higher to bring its YTD gains to 21.46% in MYR terms.
- Glove counters experiences its biggest weekly sell-off of the year amid Russia’s announcement of a vaccine approval, though the absence of extensive testing had left many sceptical of its legitimacy.
- Nevertheless, the news dragged the broader domestic index into the red, offsetting encouraging gains from banks and other sectors. As a result, the Malaysian KLCI index ended 0.8% in the red, leading the Dorsey Wright Technical Leaders Malaysia Index to drop 5.66%, contributing to the drop of the 0836EA.
- After hitting record highs in the previous week, Gold prices experienced a largest sell-down in 7 years, closing at USD1,950 per ounce at the end of last week. Nevertheless, Gold remains a strong performer of the year, with the 0828EA recording a YTD gain of 30.14% in MYR terms.
On the Economic Data Front
- US posts better than expected data across multiple fronts:
- Treasury notes rose to 0.73% last Thursday, the highest since June.
- Consumer price readings (CPI) exceeded expectations last month, with both headline and core readings up by 0.6%.
- 963,000 jobless claims were filed last week, dropping below 1 million for the first time in 20 weeks.
- Encouraging data flowed out of retail sales as numbers rose 1.2% in July, though below the forecasted 2.0%.
- Industrial production rose by 3.0% in July, slightly ahead of the consensus of 2.8%.
- A bad week for the UK:
- The UK officially fell into depression last week, after the country’s economy fell by a record 20.4% in the second quarter - the deepest plunge among major economies.
- Official data shows that the UK experienced job losses of 730,000 between March and July.
- China economic data mixed:
- Retail sales dropped 1.1% from a year earlier, below expectations of a 0.1% growth as consumers turned more cautious.
- Economic activity showed signs of slowing down as a result of devastating floods that damaged agricultures, and disrupted industries.
- Industrial output expanded by 4.8%, continuing its 4-month growth streak.
- The auto-sector enjoyed one of its best performance when its output growth grew to its strongest levels since 2016.
- Fixed income investment fell 1.6% over the 7 months of the year, improving from the 3.1% decline in 1H of 2020, in line with expectations.
- The banking sector is expecting 3.4 trillion yuan worth of NPLs in the year, giving rise to a potential risk in the banking system.
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