Market Commentary 13th April 2021 from Charlie Hancock

Posted by melaniebond


Market Commentary 13th April 2021
Equity Indices
After lagging during the previous week, UK equities rallied. The FTSE 100 rose by 2.65%, with a weaker pound providing a boost to the internationally exposed index. The more domestically orientated FTSE 250 index gained 2.39%, reaching its pre pandemic level.

The FTSE 100 was boosted by strong performance for Anglo American PLC, which gained 6.37% during the week. The company announced they intend to spin off their South African thermal coal operations into a new business, with investors encouraged by the company’s objective of focussing on metals such as copper and platinum.

Housebuilding stocks rallied across the week after data showed that activity in the UK’s construction industry rose at its fastest pace since 2014. Persimmon saw their share price climb by 6.15%, whilst rival Barratt Developments rose by 4.01%.

European indices also climbed higher last week, with the broad FTSE All World Index – Europe ex UK rising by 2.21%. Germany’s DAX lagged with a gain of 0.84% after weak performance in automobile manufacturers weighed on the index.

Christine Lagarde, president of the European Central Bank (ECB), delivered an upbeat message on the outlook for the Eurozone economy last week, whilst cautioning that there are a number of short term downside risks associated with the pandemic. Minutes from the ECB’s most recent policy meeting suggest that senior policymakers were surprised by the speed of 2020’s economic recovery and that some believe that Biden’s infrastructure plan could boost European growth.

Irish budget airline, Ryanair, saw their share price decline by 3.07% across the week after lowering their forecast for passenger numbers in 2022, citing the slow roll out of Covid-19 vaccines across Europe.

The S&P 500 index continued to reach new all-time highs last week, rising by 2.71%. The Dow Jones Industrial Average climbed by 1.95%.

The technology heavy NASDAQ 100 gained 3.87% last week, with investors adding exposure to the likes of Apple, Microsoft and Google’s parent company, Alphabet. The technology giants saw their share prices rise by 8.13%, 5.57% and 6.62% respectively.

Data tracking US producer price inflation showed that input costs for companies are rising at their fastest rate since 2011, with annual inflation of 4.2%. Some economists believe this is likely to translate into higher consumer price inflation over the coming months.

Asian equities lagged last week, with the broad FTSE All World Index – Asia Pacific rising by 0.40%. Japan’s Nikkei 225 index fell by 0.97%, with weakness in automakers and industrials weighing on the index.

China’s Shanghai Composite Index fell by 0.97%, with regulatory concerns around internet and technology conglomerates continuing to impact sentiment. Alibaba’s share price rallied during the early part of the week, before faltering again to finish the week down by 0.42%. Tencent declined by 5.58% across the week after their largest shareholder, Prosus, said they intend to sell $14.6 billion worth of their holding in the Chinese technology giant.

Bond Yields
The 10-Year Gilt yield was relatively stable last week, moving from 0.79% to 0.77%.

Whilst economic data for the UK was broadly positive last week, a fall in the Pound appeared to provide downward pressure on yields.

The 10-Year German Bund yield rose from -0.33% to -0.30% last week.

Minutes from the ECB’s recent policy meeting, which described the boost from President Biden’s fiscal spending as an “upside risk” appeared to add to expectations for stronger economic growth and inflationary pressures, pushing Bund yields up across the week.

The 10-Year US Treasury yield declined from 1.72% to 1.66%. After rising rapidly during March, Treasury yields have exhibited more stability so far during April.

The Federal Reserve have re-iterated they intend to keep monetary policy loose for some time, with the most recent policy meeting’s minutes, which were released last week, confirming this message. A senior figure from the central bank also told CNBC last week that there are millions of jobs missing due to the pandemic, with “some distance to go” until these are recovered.

GBP / USD – Current 1.3707 Previous 1.3832

GBP / EUR – Current 1.1515 Previous 1.1754

The Pound declined by 0.90% against the US Dollar and 2.03% against the Euro last week, with hedge funds reportedly closing their bullish positions on Sterling. The UK’s medicines regulator recommending that under 30’s are offered an alternative vaccine to the AstraZeneca version, due to a risk of rare blood clots, appeared to impact sentiment on the Pound.

Gold gained 0.87% last week, reaching $1,743.88 per ounce.

The precious metal has historically been viewed as a hedge against inflation, however, the data released last week indicating that inflationary pressures are building failed to prompt any significant interest from investors.

Oil prices gave up some of their recent strength, with the Brent Crude spot price falling 2.94% to reach $62.95 per barrel. There was little in the way of news flow relating to supply or demand to drive a meaningful change in oil prices during the week.