Market Commentary 7th April 2021 from Charlie Hancock

Posted by melaniebond
Market Commentary 7th April 2021
Equity Indices
UK
The FTSE 100 was broadly flat across the week (-0.05%), with weakness in heavyweight oil stocks weighing on the index. The FTSE 250 index saw a gain of 1.14%.

Data from the Office for National Statistics (ONS) showed that the UK economy expanded by 1.3% in the final quarter of 2020. The ONS also released data on household savings, which showed the percentage of disposable income saved was 16.1% during the final quarter of the year.

The Bank of England (BoE) published data showing that households saved £17.1bn in February, which compares to a monthly average of £4.6bn during 2019. The BoE believes that this savings pile will be a significant driver in the economic recovery during the coming months.

Europe
European equity markets climbed higher last week, led by Germany’s DAX index which gained 2.43%. The broad FTSE All World Index – Europe ex UK rose by 1.09%.

Investors shrugged off coronavirus related concerns, with France implementing a nationwide lockdown amidst a surge in intensive care admissions. The debate regarding AstraZeneca’s Covid vaccine continued, with Germany and the Netherlands suspending use of the vaccine for people aged below 60.

Volkswagen’s share price rallied by 9.37% across the week. Investors appeared encouraged by the group confirming they will proceed with a $100 million investment into battery development with the US based lithium battery producer, QuantumScape. The optimism fed through to rival German automakers, with BMW’s share price rising by 5.83%.

US
The S&P 500 index gained 1.14%, surpassing 4,000 points for the first time. The Dow Jones Industrial Average gained 0.24% and the NASDAQ 100 rose by 2.70%, with investors rotating back into technology stocks during the week.

Investors were in a cautious mood during the early part of the week, with attention focussed on the previous week’s collapse of the Archegos Capital Management hedge fund. The $10 billion fund failed after severe declines in their portfolio, with the fund leveraged by an estimated 500%. The collapse reportedly led to losses of $4.7 billion for Swiss investment bank, Credit Suisse, which acted as the main broker for Archegos. Credit Suisse saw their share price fall by 16.80% last week as a result.

Investor sentiment improved as the week progressed, with President Biden’s announcement regarding an infrastructure package on Wednesday driving the risk-on mood. The infrastructure bill proposes spending of $2.3 trillion, with a focus on transportation infrastructure and high speed internet. President Biden suggested that a second package, with spending on healthcare and education, would be announced in April.

Asia
Asian equity markets saw mixed performance last week, with the broad FTSE All World Index – Asia Pacific gaining 0.48%. China’s Shanghai Composite Index rose by 1.93% and the Nikkei 225 gained 2.32%.

Sentiment on China improved last week after the Beijing administration announced tax cuts to help spur a recovery in consumption. Purchasing Managers Index (PMI) data for March was mixed, with the services sector seeing a better than expected reading, whilst the index for the manufacturing sector was slightly lower than estimates.

Japanese equities rebounded from the decline seen during the previous week, despite the release of relatively poor economic data. Official statistics showed retail sales and industrial production fell by more than expected during February.

Bond Yields
UK
The 10-Year Gilt yield rose across the week, moving from 0.76% to 0.79%. Investors appeared happy to rotate away from UK government bonds last week, with sentiment on the UK economy continuing to improve as coronavirus related restrictions ease.
Europe
The 10-Year German Bund yield moved from -0.35% to -0.33%. During the early part of the week, data showing rising Eurozone inflation prompted investors to rotate away from government debt, with the 10-Year Bund yield climbing to -0.29% as a result. Concerns around rising Covid cases in Europe drove demand for German Bunds during the latter part of the week, sending yields lower.

Eurozone consumer prices rose by 1.3% during March. German inflation reached its highest level since 2019 at 2.0%, whilst Italy bucked the trend with the rate of inflation declining during March. Christine Lagarde, president of the European Central Bank (ECB), stated during an interview with Bloomberg TV that the upward pressure on prices will be short lived.

US
The 10-Year US Treasury yield rose from 1.68% to 1.72%. Better than expected jobs data released on Friday prompted a rise in US treasury yields, with investors selling US government bonds in favour of riskier assets.
Currency
GBP / USD – Current 1.3832 Previous 1.3789

GBP / EUR – Current 1.1754 Previous 1.1694

The Pound gained 0.31% against the US Dollar and 0.51% against the Euro. A continued decline in UK coronavirus cases and the easing of lockdown restrictions helped to drive positive sentiment on Sterling.

Commodities
Gold
After declining sharply during the early part of the week, Gold found some support to finish the week 0.21% lower at $1,728.87 per ounce. The precious metal did not appear to move based on the week’s economic data or President Biden’s infrastructure package announcement.
Oil
Oil prices were broadly unchanged across the week, with the Brent Crude spot price moving from $64.57 per barrel to $64.86. The OPEC+ group of oil producing nations agreed to increase production last week, but prices remained relatively stable with oil traders viewing the decision as sign of confidence in demand levels.