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 (PYPL), Adobe (ADBE) and Alphabet (GOOGL) among the fallers. Tesla (TSLA) 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) (SPX, SPY)

Dow Jones Industrial Average: -0.6% Friday, -1.4% YTD (-1.8% last week) (DIA)

Nasdaq Composite: -1.3% Friday, +26.1% YTD (-3.3% last week) (COMP)

Rolls Royce sinks 13% in tough week (RYCEY)

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 (BTDPF), Persimmon (PSMMY) and Taylor Wimpey (TWODF) 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 (MLSPF), 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)

What to watch

US markets are closed on Monday for a public holiday.

JD Sports Fashion: Tomorrow, London-listed JD Sports Fashion (JDDSF) will release its latest quarterly earnings. The firm is ahead of the broader market year-to-date, although its share price is still down 14.6%. Back in April the company scrapped its final dividend and chairman Peter Cowgill took a voluntary 75% salary cut in response to the Covid-19 pandemic. Investors will be watching for the company’s view on whether the pandemic-induced shift to online shopping will be a permanent one, and how it plans to capitalise. Of interest too will be how the firm’s bricks and mortar stores have performed as lockdown restrictions have been relaxed.

Ashtead Group: British industrial equipment rental firm Ashtead Group (ASHTF) has gained 6.1% year-to-date, although it has been largely flat over the past three months. The firm’s growth in recent years has been driven by acquisitions, and potential opportunistic deal-making during the current turmoil will be a likely feature of tomorrow’s earnings call. Last quarter, CEO Brendan Horgan noted that the firm had continued with new location openings, bolt-on M&A, and dividend/buyback returns to shareholders during the crisis, while remaining within its long-term leverage range of 1.5 to 2 times.

September is historically the worst month for stocks

The month of September has a widespread reputation for poor equity market performance. According to MarketWatch, since the Dow was launched in the 19th century, it has sustained an average 1% fall during the month versus the 0.7% gain average for all other months. Financial advice firm LPL’s chief market strategist Ryan Detrick told Business Insider that the last two times when stocks were up more than 5% in August (1986 and 2000) the S&P 500 fell by 8.5% and 5.4% in the September that followed. That said, on average the Dow has not lost money during the September of presidential election years.

This year there are a number of issues that will come to a head during September. As well as election fever, a key event this month will be the Federal Reserve’s September 16 meeting to discuss further steps to support the economy during the pandemic. Sam Stovall, chief investment strategist at CFRA, noted in a Reuters interview that a breakdown in stimulus bill negotiations between Democrats and the White House may add to volatility during the month.

Crypto corner: Bitcoin bank float gets billionaire backing

A bitcoin banking company is planning to raise up to £40m by floating on the London Stock Exchange.

Mode, which provides online payments services and lets users buy and sell bitcoin, is backed by multimillionaire businessman Jonathan Rowland and has also received investment from Biz Stone, the co-founder of Twitter.

The company is expected to confirm a stock market listing in the next month according to reports.

Mode, which bills itself as a “trusted place to buy and store bitcoin, offers a “Bitcoin jar” where users can buy cryptocurrency that then offers them an interest rate return. 

All data, figures & charts are valid as of 07/09/2020.