Market Commentary 26th April 2021 from Charlie Hancock

Posted by melaniebond


Market Commentary 26th April 2021
Equity Indices
During a week in which most major equity indices declined, the FTSE 100 moved 1.15% lower and the FTSE 250 declined by 0.67%.

Whilst UK economic data was positive last week, investor sentiment was negatively impacted by concerns around rising global Covid-19 cases. The recent surge in India, reportedly driven by a new variant of the virus, acted as a reminder that the pandemic is far from over. Investors voiced their concerns by reducing exposure to travel related stocks, with International Consolidated Airlines Group seeing their share price decline by 5.53% across the week.

Tobacco companies saw their share prices come under pressure after reports of the Biden administration considering nicotine limits for cigarettes sold in the US market. The proposals aim to reduce nicotine amounts below the level at which they become addictive. British American Tobacco saw their share price fall by 5.76%, whilst rival Imperial Brands saw a decline of 6.04%.

European equities were mixed, although most of the headline indices saw declines. Germany’s DAX index fell by 1.17%. The FTSE All World Index – Europe ex UK was broadly flat, moving 0.03% higher, with relatively strong performance in Swiss equities lifting the index. Investors in European equities were weighing up positive corporate news and economic data against concerns around rising coronavirus cases globally.

ASML, the Dutch semiconductor equipment company, raised their 2021 revenue forecasts, whilst Heineken and luxury goods maker Kering both reported strong Q1 earnings. A Eurozone Purchasing Managers Index (PMI) for April defied analyst expectations for a decline, with the index improving from March’s level to reach a 9 month high. Eurozone consumer confidence also rose to the highest level seen during the pandemic.

The German government passed legislation allowing stricter lockdown restrictions, with the ability to impose curfews and school closures in areas where infection rates are considered to be too high. On the positive side, vaccination rates across most of Europe remained at encouraging levels last week.

The S&P 500, Dow Jones Industrial Average and NASDAQ 100 all moved lower last week, registering declines of 0.13%, 0.46% and 0.72% respectively. The small-cap Russell 2000 index bucked the trend, rising by 0.41% across the week.

During a choppy week for US equity indices, investors appeared concerned by the prospect of Covid-19 variants hindering progress in the vaccination programme. In addition, sentiment on US equites turned negative after the Biden administration proposed a rise in capital gains tax, as well as some income tax rises for the highest earners.

Economic data was broadly positive, with the number of initial unemployment claims declining further and new home sales in the US rising to their highest level since 2006.

Asian equity markets saw mixed performance last week. The broad FTSE All World Index – Asia Pacific fell by 0.39%, whilst Japan’s Nikkei 225 declined by 2.23%. China’s Shanghai Composite Index rose by 1.39%.

With investors concerned about the prospect of strict lockdowns in Japan amidst a surge in coronavirus cases, Japanese equities experienced weakness last week. Data showing consumer prices fell by 0.1% in March added to the cautious sentiment.

After a period of weakness, Chinese equities regained some ground last week. Investors reacted positively to China’s central bank maintaining a dovish stance for a key policy rate, whilst the announcement of a number of market reforms from financial regulators in Beijing appeared to add to the risk on mood.

Bond Yields
The 10-Year Gilt yield was steady across the week, moving 2 basis points lower to 0.74%.

Closely watched UK data was positive last week, with optimism amongst UK manufacturers at the highest level seen for 48 years, house sales rising to their highest level since 2005 and Covid-19 cases remaining relatively low. Concerns around rising cases elsewhere across the globe appeared to prompt some investors to increase their exposure to Gilts, driving yields down slightly.

The 10-Year German Bund yield was flat across the week at -0.26%. During the early part of the week, optimism on the vaccination programme in Europe sent yields higher, before concerns about rising cases globally contributed to yields declining again as the week progressed.

The European Central Bank (ECB) kept monetary policy unchanged following their committee meeting last week. The ECB re-iterated their desire to keep borrowing costs low and indicated they would continue with their recently increased bond purchasing programme over the coming months.

The 10-Year US Treasury yield moved from 1.58% to 1.56% last week. Concerns around Covid-19 and Biden’s proposed tax increases appeared to drive increased purchases of treasuries last week, with the 10-Year yield declining as a result.
GBP / USD – Current 1.3876 Previous 1.3832

GBP / EUR – Current 1.1478 Previous 1.1551

The Pound gained 0.32% against the US Dollar and declined by 0.63% against the Euro, with optimism around the economic recovery and the vaccination programme in Europe prompting strength in the Euro last week.

Gold remained in ‘no man’s land’, with the spot price moving 0.04% higher to $1,777.20 per ounce.
Oil prices remained close to their recent highs last week, with the Brent Crude spot price falling by 1% to $66.11 per barrel.