Markets Update Monday 05/10/2020 – Market Health-check

Frankfurt – 05/10/2020

Market Health-check

The stock markets are currently a reflection of the health condition of US President Trump. On Friday, prices plummeted when the 74-year-old allegedly fell ill with corona. Today, prices rose again because Trump, according to news reports, is on the road to recovery.

The political uncertainty that had still prevailed on Friday eased noticeably on Monday. With Trump’s rapid recovery and the president’s return to the White House, the chances of an initial agreement between Republicans and Democrats on another US stimulus package are growing. Accordingly, investors reacted today with great delight, sending the markets northward.

But what exactly is behind Trump’s COVID-19 infection? How sick is he really, and what tactics may lie behind the whole issue? 

The fact is that Trump’s cards don’t seem to be that good in the US election campaign anymore and a radical turn toward “corona sympathy” could be beneficial for the current president of the US and make previously disgruntled voters rethink.

On the other side of the big pond, it rumbles on in the meantime. The Brexit chaos and the growing corona worries in Europe continue to weigh on the economy, but at least today these worries have been kept away from the stock markets. At the same time, the situation in several major European cities has worsened. In Paris the highest warning level has been declared, bars and cafés have to close. The Spanish capital, Madrid, has been hit even harder and almost the entire city is closed off.

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US Markets at a glance

Wall Street got off to a very friendly start to the new week. The Dow Jones ended the day 1.68 per cent higher at 28,148.18 points. The NASDAQ Composite also rose sharply, closing with a plus of 2.32 per cent at 11,332.49 units.

News about Donald Trump’s health recovery provided a tailwind for the markets but also hopes about a potential solution in a new stimulus package were received positively. Solid economic data also provided a boost. The US service providers that were battered by the corona crisis surprisingly accelerated their recovery.

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Far East Markets at a glance

Asia’s stock markets also gained on Monday. The Japanese leading index Nikkei 225 recently rose by more than 1 per cent. The Hang-Seng Index of the Chinese special administrative zone of Hong Kong rose by almost 1,5 per cent. On the stock exchanges of mainland China, trading was again suspended due to a public holiday.

European Markets at a glance

The European markets showed an equally friendly trend at the beginning of the new stock market week. The EuroSTOXX 50 increased its initial plus and ultimately left the trading session 0.92 per cent stronger at 3,220.22 index units.

In the wake of friendly Wall Street, the Dax 30 also expanded its gains. It gained 1.1 per cent and climbed to over 12,800 points. It was the first winning day in a week. Now the leading German index is trading back where it started the month of October. The second-tier stocks performed even better on Monday. The MDax rose by 1.7 per cent – thanks to immense price jumps by K+S, ThyssenKrupp and Grenke. The TecDAX also ended trading above its starting price, 1.45 per cent higher at 3,123.38 points.

It was still the health of US President Donald Trump that was the focus of investor attention. This is said to have improved over the weekend so that Trump could return to the White House soon. 

Positive news also came from the economic side: the eurozone PMI in September came in better than expected.

Forex, gold, oil and crypto

The Trump theme also played a major role in the foreign exchange market. In a renewed risk-on environment, the dollar lost 0.3 per cent against a basket of currencies. The euro rose sharply and approached the 1.18 dollar mark. In late US trading, the euro was quoted at 1.1772 US dollars. The common currency benefited from the increased risk appetite in the Forex and overall financial markets. Also, some economic data from the eurozone turned out better than expected. For example, retail sales in August rose more strongly than predicted. Furthermore, the mood in the service sector in the eurozone appears better than expected.

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The mood on the commodities market also brightened. The barrel price of US light oil of the WTI variety rose by 3.6 per cent to 38.37 US dollars, while North Sea oil of the Brent variety became 3.2 per cent more expensive at 40.54 US dollars. A strike by oil workers in Norway, which paralyzed four oil and gas fields belonging to the Equinor Group, also played a role in this development. The Norwegian oil and gas industry assumes that up to 330,000 barrels of oil per day less could be produced as a result.

Gold also increased in value today, closing at $1,913 per troy ounce. During the Asian session, the precious metal had dropped as low as $1,886 before jumping back up above $1,900. 

The cryptocurrency market presented itself very mixed. While Bitcoin and Ethereum, the current number 1 and 2 in the crypto-sphere, remained almost unchanged at $10,700 and $351 respectively, the value of XRP increased by 2.3 per cent to $0.2530. 

Corporate and world news

Economic data

The purchasing managers’ index in the US rose to 57.8 points in September, according to the company survey published on Monday by the Institute for Supply Management (ISM). Experts had expected a slight decline. The barometer remains well above the 50 point mark, above which it signals growth.

Growth in the eurozone private sector did not weaken quite as much in September as previously assumed. The composite index for production in the private sector – industry and service providers combined – compiled by IHS Markit fell to 50.4 points in its second publication (August: 51.9). 

Further, eurozone retail sales in August were significantly higher than expected. According to information from Eurostat, price- and seasonally adjusted sales rose by 4.4 per cent compared with the previous month and were 3.7 per cent (July: minus 0.1 per cent) up on the same month in the last year. The economists surveyed by Dow Jones Newswires had forecast monthly growth of just 2.5 per cent. 

Weir sells its oil and gas business to Caterpillar

The Weir Group has sold its oil and gas business to Caterpillar for $405 million. The British pump and equipment manufacturer Weir Group has announced that it intends to focus entirely on the mining business. The proceeds are to be used to reduce liabilities.

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Weir Group reacted to the sales plans on Monday in London by increasing the share price by 16 per cent. At the top of the US leading index Dow Jones 30 Industrial, Caterpillar shares recently gained 2.7 per cent to slightly more than 154 dollars. This brings them close to their two-year high of 156.25 dollars reached about two weeks ago.

Caterpillar is taking advantage of its strong balance sheet to buy the oil and gas business at a significantly lower valuation, which is opening up new revenue streams in the spare parts and service business, wrote analyst Seth Weber of RBC. However, he qualified that the conditions in the oil and gas business are currently challenging. The turnaround is difficult to predict here. Weber continues to vote with “neutral” and a price target of 130 US dollars.

K-Pop-Label wants to conquer the stock market

The Korean company Big Hit is meeting with great interest from investors in its IPO. It was said that investors wanted to buy a thousand times more shares than were offered. The issue price was therefore set at 135,000 won at the upper end of the price range. Big Hit manages the K-Pop band BTS, which recently had a number one hit in the USA with “Dynamite”. The largest Korean IPO in three years is expected to bring in the equivalent of 820 million US dollars.

The boy band BTS is a global music phenomenon. Known for their meticulously rehearsed dance choreographies, the band with seven members is South Korea’s most famous and successful music export. The IPO will turn the seven BTS members into multimillionaires: The head of Big Hit, Bang Si-hyuk, had allocated 68,385 shares to each of them in August – at the issue price, that would be around 6.8 million euros each. The first day of trading is to be October 15.

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