Market Commentary 19th April 2021 from Charlie Hancock

Posted by melaniebond
Market Commentary 19th April 2021
Equity Indices
With encouraging economic data driving a risk on environment last week, UK equity indices rallied further. The FTSE 100 gained 1.50%, breaking through the 7,000 level for the first time since the market crash of March 2020. The FTSE 250 index rose by 1.22%.

Robust economic data from China contributed to rising copper prices last week. This resulted in strong performance for mining stocks, with Glencore and Anglo American rising by 4.61% and 3.78% respectively. The FTSE 100 was also boosted by higher oil prices, with BP’s share price climbing 2.69%.

Official data showed that the UK economy grew by 0.4% during February, whilst the decline experienced in January was revised to 2.2% from 2.9%. Improving data on trade between the UK and the EU also appeared to add to the positive sentiment. After declining by 42% in January, UK exports to the EU rose by 46.6% during February.

European equity indices moved higher last week, with the broad FTSE All World Index – Europe ex UK rising by 2.01%. Germany’s DAX index gained 1.48%.

Investors shrugged off concerns around rising coronavirus cases in Europe, with hopes for a faster than previously expected economic recovery driving indices higher. Germany and France accelerated their vaccination programmes, with Germany announcing plans to administer more jabs via GP surgeries and France adopting a similar strategy to the UK by increasing the gap between doses.

The Mario Draghi led Italian government approved a €40 billion icrease to the 2021 budget deficit, with reports suggesting this will be used to fund an economic stimulus package. The additional spending is expected to push the annual deficit above 10% for the first time for almost 30 years.

Three major US equity indices climbed to new all-time highs last week. The S&P 500 gained 1.37%, the Dow Jones Industrial Average rose by 1.18% and the NASDAQ 100 moved 1.42% higher.

US economic data added to hopes of a faster than expected economic recovery last week. Retail sales rose by 9.8% during March, which was the fastest rate for 10 months. Weekly jobless claims were significantly better than expected, falling to the lowest level since the start of the pandemic. A closely watched consumer sentiment survey rose to its highest level since the pandemic commenced and an index compiled by the Philadelphia Fed, which measures factory activity, hit its highest level for nearly 50 years.

Goldman Sachs reported earnings significantly ahead of expectations, resulting in their share price rising by 3.51% across the week. The US investment banking giant posted earnings per share of $18.60, with the average analyst estimate being $10.22.

Asian equities lagged last week, with the broad FTSE All World Index – Asia Pacific rising by 1.05%. Japan’s Nikkei 225 declined by 0.28%, whilst China’s Shanghai Composite Index fell by 0.70%.

Rising coronavirus cases appeared to impact sentiment in Japan, with Tokyo seeing a notable spike. On the positive side, the governor of the Bank of Japan, Haruhiko Kuroda, delivered an upbeat message on the Japanese economy, stating that he expects business sentiment to improve.

China posted strong economic data last week, with the economy expanding by 18.3% during the first quarter in comparison to the same period in 2020. Industrial output rose 14.1% year on year, whilst retail sales grew by 34.2%. Some analysts believe the data brought forward expectations for tighter monetary policy in China, which contributed to Chinese stocks declining across the week.

Bond Yields
The 10-Year Gilt yield was broadly unchanged for the week, declining 1 basis point to 0.76%.

During the early part of the week, the 10-Year yield rose to 0.80%, with data showing the UK economy expanded by 0.4% during February appearing to provide upward pressure on yields.

The 10-Year German Bund yield rose across the week from -0.30% to -0.26%.

It appeared that optimism around the vaccination programme in Europe prompted investors to rotate away from government bonds last week.

The 10-Year US Treasury yield declined from 1.66% to 1.58% last week. Strong demand for new issuances of Treasury stock week appeared to provide downward pressure on yields.

The Federal Reserve chair, Jerome Powell, stated during a speech last week that a rate hike in 2021 is unlikely and the central bank would like to see inflation move moderately above 2% for some time. Inflation data for March released last week showed that consumer prices rose by 0.6%, whilst core prices, excluding food and energy, climbed by 0.3%.

GBP / USD – Current 1.3832 Previous 1.3707

GBP / EUR – Current 1.1551 Previous 1.1515

The Pound climbed by 0.91% against the US Dollar last week, whilst gaining 0.31% against the Euro. With currency traders positive on the UK currency, the pound clawed back some ground after the sharp decline seen during the previous week.

Gold was in favour last week, with the spot price rising by 1.87% to reach $1,776.51 per ounce. Data showing that US inflation in March was ahead of expectations provided some support for the precious metal.
Oil prices saw strong gains last week, with the Brent Crude spot price rising by 6.07% to reach $66.77 per barrel. The International Energy Agency (IEA) raised their 2021 forecasts for oil demand last week, with hopes of a robust economic recovery expected to drive increased consumption.