Market Commentary 8th March 2021 from Charlie Hancock

Posted by melaniebond

Market Commentary 8^th March 2021

Equity Indices

UK equity indices fared better than most of their global counterparts last week, with the FTSE 100 gaining 2.27% and the FTSE 250 rising by 0.24%. Recent trends continued during the week, with the FTSE 100 index lifted by strong performance in banking, energy and mining stocks.

Chancellor Rishi Sunak delivered his budget speech, announcing £65 billion in fiscal spending to support the economy whilst the recovery from the pandemic continues. The budget included an extension to the stamp duty holiday, as well as a scheme to increase the availability of 95% mortgages. Housebuilder stocks rallied across the week, with Persimmon gaining 12.20% and Barratt Developments climbing by 7.38%.

The rotation from growth to value and ‘Covid winners’ to recent laggards continued. Online supermarket, Ocado PLC, saw their share price decline by 5.09%, whilst BP PLC, which was weak for much of last year, rallied by 9.27%.

Europe

Performance in European equity indices was mixed last week, with the broad FTSE All World Index – Europe ex UK declining by 1.37%. Germany’s DAX index, which is heavily skewed towards financial, automotive and other industrial stocks, gained 0.97% across the week.

Headlines regarding Italy blocking a shipment of Oxford-AstraZeneca vaccines heading to Australia prompted continued speculation of supply issues across the European Union (EU). The French health minister said France may also block vaccine shipments heading abroad.

Germany extended the national lockdown until the 28^th March, although restrictions were eased in areas with low infection rates, allowing more retailers and museums to open.

The S&P 500 index gained 0.81% across the week. The rotation from growth stocks to value sectors with lower valuations contributed to the technology heavy NASDAQ 100 index declining by 1.87%, whilst the Dow Jones Industrial Average climbed by 1.82%.

Continued strength in commodity prices and hopes for coronavirus related restrictions around the globe to be eased added fuel to the rotation from growth to value stocks. Investors reduced their exposure to stocks which benefitted from the pandemic, such as Zoom Video Communications, whilst increasing exposure to stocks such as Exxon Mobil. Across the week, Zoom’s share price fell by 9.68%, whilst Exxon’s gained 12.02%.

The Biden administration continued to work on a fiscal stimulus package of $1.9 trillion, with the senate approving the legislation over the weekend. The package includes a temporary increase to unemployment benefits of $400 per week, together with means-tested payments of $1,400 to US citizens. Some Republican congress members opposed the bill on the basis that it was not required, citing improving employment data.

Asia

The broad FTSE All World Index – Asia Pacific fell by 0.42% across the week. China’s Shanghai Composite Index saw a decline of 0.20% and Japan’s Nikkei 225 fell by 0.35%.

After beating expectations throughout 2020, China’s official Purchasing Managers Index (PMI) data for February was worse than expected for both the services and manufacturing sectors. Analysts pointed to the dampening effect of reduced Lunar New Year holiday celebrations, with travel restrictions put in place to limit coronavirus outbreaks.

The outlook for Japan’s industrial companies improved, with a PMI reading for the manufacturing sector indicating expansionary conditions for the first time since May 2019. The services PMI saw a less encouraging reading, with coronavirus related restrictions resulting in business activity continuing to decline.

Bond Yields

The 10-Year Gilt yield moved from 0.82% to 0.75% across the week, with expectations for higher interest rates cooling off slightly. The budget announcements from Rishi Sunak appeared to have little impact on gilt yields.

Europe

The 10-Year German Bund yield declined from -0.26% to -0.30% last week. After recent comments from officials at the European Central Bank (ECB), who stated that rising bond yields were being monitored closely, markets remained unsure of the path for interest rates in the Eurozone.

The 10-Year US Treasury yield continued to climb, moving from 1.41% to 1.57% across the week.

The Federal Reserve chairman, Jerome Powell, spoke at the virtual Wall Street Journal conference, with investors hoping for dovish remarks. Powell stated that the Fed continues to target maximum employment and that the economy needs to improve significantly in order for their goals to be met. Powel re-iterated that the central bank has no plans to reduce asset purchases or raise interest rates in the near future, with the bank happy to let inflation run above their 2% target for a period of time.

Currency

GBP / USD – Current 1.3841 Previous 1.3933

GBP / EUR – Current 1.1615 Previous 1.1540

The Pound lost ground against the US Dollar last week, falling by 0.66%, but rose by 0.65% against the Euro. With treasury yields rising whilst UK and European government bond yields cooled off, the Dollar strengthened against most major currencies.

Commodities

Gold

Gold remained weak, with the spot price falling by 1.93% to $1,700.64 per ounce. Whilst Gold has typically been viewed as a hedge against inflation, it is also less desirable when the outlook for the global economy is improving.

Oil

Oil prices continued to strengthen, with OPEC committing to product cuts during April. The move was somewhat unexpected, with recent speculation of the oil producing group ramping up production next month. The Brent Crude spot price gained 4.88% to reach $69.36 per barrel.