Market Commentary 4th May 2021 from Charlie Hancock
|Market Commentary 4th May 2021|
|During a week in which most equity indices around the globe moved lower, UK equities outperformed. The FTSE 100 rose by 0.45% and the FTSE 250 index gained 0.56%.
A closely watched economic growth estimate from the EY Item Club was revised higher, with UK Gross Domestic Product (GDP) expected to grow by 6.8% in 2021. The previous growth estimate published in January was 5%.
Developments in potential vaccine passport schemes helped travel stocks to recover from some of their recent weakness, with the British Airways parent company International Consolidated Airlines Group rising by 3.08%. Budget rival easyJet gained 5.03% across the week.
|The majority of European equity indices declined last week, with the broad FTSE All World Index – Europe ex UK moving 0.82% lower. Germany’s DAX index fell by 0.94%.
Data on economic growth published by the European Commission suggested that the Eurozone may have entered a recession during the first quarter of the year. The preliminary data suggested the Eurozone economy contracted by 0.6% following a 0.7% decline in the final quarter of 2020.
A regular survey carried out by the European Commission showed that the outlook for the Eurozone economy improved during April, with improvements in vaccination programmes being a significant driver for the optimism. The German government published an updated forecast for 2021 GDP growth, increasing their previous estimate of 3% to 3.5%.
|The S&P 500 index was broadly flat at +0.02%, whilst the Dow Jones Industrial Average declined by 0.50% and the NASDAQ 100 fell by 0.58%.
Data published last week showed that the US economy expanded by 1.6% during the first quarter of the year, with a surge in consumption driving growth. Amazon’s first quarter results provided evidence of the strength in the consumer sector, with their revenue 44% higher than the same period during 2020. Shares in the e-commerce giant moved 3.79% higher across the week.
Evidence of strength in the manufacturing sector and a further decline in weekly jobless claims added to expectations of strong economic growth for 2021. This prompted a rise in bond yields, which appeared to negatively impact sentiment on US equities last week.
|Asian equity markets also gave up some ground last week, with the broad FTSE All World Index – Asia Pacific moving 0.76% lower. Japan’s Nikkei 225 declined by 0.72% and China’s Shanghai Composite Index fell by 0.79%.
Data released last week suggested that the Japanese economy is recovering after starting 2021 with a period of weakness. Retail sales in March grew for the first time in 4 months and industrial production rose by 2.2%, with increased car production helping to defy economist expectations of a 2% decrease.
Regulatory issues continued to impact sentiment on Chinese companies last week, with authorities summoning Tencent, JD.com and several others to a meeting with officials including representatives from the central bank. Reports suggest that 13 technology companies were told to rectify problems on their platforms and increase their capital reserves.
|The 10-Year Gilt yield moved from 0.74% to 0.84% last week. Strengthening economic data which pointed to a robust recovery during 2021 brought forward expectations for interest rate rises, with gilt yields moving higher as a result.|
|The 10-Year German Bund yield climbed from -0.26% to -0.20% last week.
Higher than expected inflation data appeared to contribute to Eurozone yields rising last week. Across the bloc, inflation rose to 1.6% in April from 1.3% in March. Germany’s inflation rate climbed to 2.1%.
|The 10-Year US Treasury yield moved from 1.56% to 1.63% last week.
Whilst Federal Reserve chief, Jerome Powell, delivered a dovish tone in the central bank’s post policy meeting press conference, the week’s strong economic data data pushed yields higher.
|GBP / USD – Current 1.3822 Previous 1.3876
GBP / EUR – Current 1.1492 Previous 1.1478
The UK’s strong economic forecasts had little impact on Sterling last week. The Pound moved 0.39% lower against the US Dollar, whilst gaining 0.12% against the Euro.
|Gold prices faded slightly, with the spot price moving 0.45% lower to $1,769.13 per ounce. With the Federal Reserve downplaying inflation risks last week, there were few catalysts for the precious metal to gain support amongst investors.|
|The Brent Crude spot price gained 1.72% to reach $67.25 per barrel. Oil prices appeared to be supported by discussions around vaccine passports, which improved expectations for a resumption in international travel .|