Asian Equity Market
The sharp drop in US cash equities overnight saw some effect on Asian equities. The Nikkei fell -1.11%, a day after achieving the highest close post-Covid 19. Nonetheless, it is still up +1.4% on the week, recovering from the plunge from Abe’s resignation. In China, the SHCOMP dropped -0.88%, while the HSI declined -1.25%, for the lowest close since 10-Aug.
European Equity Market
In Europe, the German DAX led to the downside at -1.65%, though the midweek gains limited the week’s decline to -1.8%. The UK’s FTSE 100 was the biggest laggard on the week, down -3.5%, as Brexit worries weighed on both the pound an UKX.
US Equity Market
In the US, it was a wild start to the NY session with the Nasdaq accelerating losses to -5% within 2 hours of the open. However, buyers started supporting the index, limiting the losses for the Nasdaq (-1.27%), S&P 500 (-0.81%), and the small-cap Russell 2000 (-0.61%). This marked the weakest weekly performance for the Nasdaq since March 20. Amongst the S&P sectors, financials were the best performer at +0.8%, while technology lagged at -1.8%.
U.S. Treasury yields shot higher on Friday, propelled by a drop in the August unemployment rate and ahead of a big burst of supply next week. Long-term yields soared 8.33-10.98bps and the US 2Y yield rose 1.58bps. This has the effect of steepening the US 2Y-10Y curve to 57.52bps. German govies yields rose for the first time in four sessions following a rise in U.S. Treasury yields. German 10Y yield rose 1.60bps to -0.472 off Thursday 1-1/2 week lows. Italian 10Y yields were up 4.1bps to pushing the German 10Y – Italian 10Y to near their highest in a month.
There was some action in oil markets as both the front-month Brent and WTI fell -3.20% and -3.87% respectively. The drops came despite no USD strength and EIA data on Wed showing storage drawdowns and lower oil production. Looking at the 2-8-month Brent spread, the contango has widened to levels not seen since late-May. In base metals, copper staged a remarkable comeback on Friday, gaining +2.23%, closing above its recent highs, while the cash- 3m spread tightened 8.45 to 19.5b. This is still off the high of 30.5b achieved on 28-Aug. Precious metals also had a relative recovery, gaining +0.16% for gold and silver up +1.22%.
The safe-haven U.S. dollar dipped, retracing gains made on safe-haven demand following a Labour Department report that job growth slowed further, and permanent job losses increased in August. The dollar index rallied to its highest in a week following the report. But those gains were erased late on Friday as U.S. stock indexes recovered and closed at 92.719 down -0.022% for the day. The offshore yuan and aussie were the biggest beneficiaries against the weakened dollar as they rose 0.15% and 0.124% respectively. The euro fell -0.12% against the dollar to 1.1838. Sterling fell against the dollar for the third day in a row as it fell -0.02% to 1.3279, recovering slightly from its 1.3181 levels in hit earlier in the session.