Market Commentary 15th February 2021 from Charlie Hancock

Posted by melaniebond

Market Commentary 15^th February 2021

Equity Indices

The FTSE 100 by 1.55% last week, with a rally in mining stocks lifting the index. The FTSE 250, which usually benefits from a rise in Sterling, declined by 0.14%, despite the pound strengthening across the week.

Official Gross Domestic Product (GDP) figures released on Friday showed that the UK economy contracted by 9.9% during 2020. On a positive note, the data showed growth of 1.2% during the final quarter of the year, indicating that the UK is likely to avoid a double dip recession.

Mining stocks rallied last week, with investors anticipating increases in demand as the global economy continues to recover. Anglo American PLC saw their share price rise by 7.21%, whilst Rio Tinto PLC gained 5.59%.

Europe

European equity indices were mixed last week. The broad FTSE All World Index – Europe ex UK gained 1.76%, aided by gains for Italian and French equities, whilst Germany’s DAX index declined by 0.05%. Investors were positive on Italian equities in expectation of the former European Central Bank chief, Mario Draghi, being confirmed as Italy’s new prime minister.

The European Commission lifted their economic forecast for 2022, predicting growth of 3.9% for the year. This coincided with less positive headlines regarding the pandemic, with German Chancellor Angela Merkel stating that the vaccine roll out has been “disappointing”. The German parliament also extended current lockdown restrictions until 7^th March.

US equity indices moved higher across the week, with the S&P 500 gaining 1.23%, the Dow Jones Industrial Average rising by 1.00% and the NASDAQ 100 increasing by 1.50%.

Investors appeared to be encouraged by a mid-week speech from the Federal Reserve chairman, Jerome Powell. Powell delivered very dovish remarks, stating that he believes the real unemployment rate is close to 10%, whilst adding that the central bank is not currently thinking about shrinking their balance sheet.

The financial sector outperformed last week, with rising treasury yields driving gains for stocks in the banking sector. Semiconductor stocks also rallied following reports of microchip shortages amidst rising demand. Nvidia rose by 10.10%, whilst Advanced Micro Devices (AMD) gained 6.68%.

Asia

Asian equity indices outperformed their global counterparts last week, with the broad FTSE All World Index – Asia Pacific rising by 2.56%. China’s Shanghai Composite Index gained 4.54% and Japan’s Nikkei 225 moved 2.57% higher.

During a shorter trading week, with markets closed for Lunar New Year holiday celebrations, Chinese equities rallied. Economic data released during the week was broadly positive, with vehicle sales a particularly bright spot. New vehicle sales rose for the 10^th month in a row, with an increase of 30% during January. Electric vehicle sales reached an all-time high.

Economic data from Japan was less positive, with household spending declining under the state of emergency implemented to curb a rise in coronavirus infections. A senior Bank of Japan (BoJ) member stated that it is important to pay attention to the impact of asset purchases on market functions. The reaction from investors indicates that the market is not expecting the BoJ to significantly tighten monetary policy in the near future.

Bond Yields

The 10-Year Gilt yield continued to climb closer to pre-pandemic levels, rising from 0.48% to 0.52%. A strengthening Pound and optimism around the vaccine roll out helped to lift yields during the week.

Europe

The 10-Year German Bund yield increased from -0.45% to -0.43% across the week. The 10-Year Italian government bond yield hit a record low of 0.45% during the week, with investors optimistic about the prospects for political stability under a government headed by Mario Draghi.

The 10-Year US Treasury yield rose from 1.17% to 1.21% across the week. During the middle of the week, the yield declined to 1.12% following the release of weaker than expected inflation data, however, optimism around the economic recovery saw yields rise again on Thursday and Friday.

Currency

GBP / USD – Current 1.3896 Previous 1.3735

GBP / EUR – Current 1.1447 Previous 1.1401

The Pound gained 1.17% against the US Dollar and 0.40% against the Euro. Sterling appeared to gain support from economic data suggesting that the UK will avoid a double dip recession, together with optimism on the vaccine roll out and falling infection rates.

Commodities

Gold

Gold gained little support across the week, with the recent trend continuing. The spot price moved 0.41% higher to reach $1,821.62.

Oil

Oil prices continued to rally last week, with the Brent Crude spot price gaining 7.53% to reach $63.27. OPEC cut their oil demand forecast for 2021, however, this was shrugged off by oil traders.