Market Commentary 25th May 2021 from Charlie Hancock

Posted by Niamh Bailey
Market Commentary 25th May 2021
Equity Indices
UK
The FTSE 100 index finished the week 0.36% lower, with weakness in commodity related stocks and a stronger pound weighing on the large cap index. The FTSE 250 index rose by 0.28%.

Falling commodity prices prompted a mid-week sell off for mining companies and oil producers. Anglo American and Glencore declined by 3.78% and 4.39% respectively. Royal Dutch Shell regained some ground on Thursday and Friday to finish the week 1.67% lower, with rival BP seeing a 0.46% decline.

Economic data for the UK was broadly positive last week, with easing lockdown restrictions prompting an increase of 9.2% for retail sales during April. A closely watched survey indicated consumer sentiment rose to its highest level since the pandemic commenced, whilst a composite purchasing managers’ index (PMI covering both the manufacturing and services sectors recorded its highest reading since records began in 1998.

Europe
All major European equity indices moved higher last week. Germany’s DAX index saw a marginal gain of 0.14%, whilst the broad FTSE All World Index – Europe ex UK rose by 1.16%

A composite PMI survey for the Eurozone indicated that business activity rose at its fastest pace for three years, with the services sector seeing a notable improvement during May amidst the easing of lockdown restrictions.

German producer prices recorded a 5.2% year on year increase in April, with supply constraints impacting factory prices. A senior European Central Bank (ECB) member, Isabel Schnabel, re-iterated during a television interview that a surge in Eurozone inflation is likely to subside during 2022.

US
During a choppy week, US equity indices saw mixed performance. The S&P 500 index declined by 0.43%, the Dow Jones Industrial Average fell by 0.51% and the technology heavy NASDAQ 100 recorded a slight increase of 0.14%. Concerns around inflation and the prospect of monetary tightening by the Federal Reserve appeared to drive sentiment last week.

Particularly strong PMI data for the US pointed to growing inflationary pressures, with the reading for the services sector reaching an all time high. The release of minutes from the Federal Reserve’s April policy meeting prompted speculation around monetary tightening, with some members of the committee suggesting the central bank should start thinking about tapering their asset purchase scheme.

Asia
Mixed performance for Asian equity indices saw the broad FTSE All World Index – Asia Pacific finish the week with a gain of 1.60%. Japan’s Nikkei 225 climbed by 0.83%, whilst China’s Shanghai Composite Index declined by 0.11% after fading following a strong start to the week.

Whilst official data showed Japan’s economy contracted by more than expected during the first quarter of the year, investors appeared encouraged by strong export growth during April. A decline of 0.4% in headline prices and 0.1% in core prices indicated that deflationary pressures in Japan remain dominant.

Some of China’s largest technology and e-commerce companies experienced strong performance last week, with JD.com gaining 6.75% and Pinduoduo rising by 9.26%. Sentiment across the broader market appeared to be impacted by a slowdown in retail sales and concerns that rising coronavirus cases in some regions may impact consumption in the coming months.

Bond Yields
UK
The 10-Year Gilt yield declined across the week, moving from 0.86% to 0.83%.

At the start of the week, speculation around the Bank of England winding down their Quantitative Easing (QE) programme prompted yields to rise. As the week progressed, it appeared that concerns around the Indian variant of coronavirus and the possibility of a delay to the full easing of lockdown restrictions prompted investors to rotate back into Gilts, sending yields lower.

Europe
The 10-Year German Bund yield was flat across the week at -0.13%.

Bund yields rose during the early part of the week, with investors pricing in a potential slowdown in bond purchases by the ECB, however, comments from ECB officials stating that rising inflation will be a short-term factor appeared to send yields lower again.

US
The 10-Year US Treasury yield was broadly flat across the week, declining from 1.63% to 1.62%.

Treasuries were relatively stable across the week, although yields did see a brief spike after investors digested minutes from the Fed’s April policy meeting, which contained some hawkish remarks from some committee members.

Currency
GBP / USD – Current 1.4150 Previous 1.4097

GBP / EUR – Current 1.1617 Previous 1.1608

The Pound moved 0.38% higher against the US Dollar and saw a slight increase of 0.08% against the Euro. Concerns around a new coronavirus strain spreading in some parts of the UK were outweighed by positive economic data, with currency traders bullish on Sterling as a result.

Commodities
Gold
Gold continued to attract buyers last week, with the spot price moving 2.05% higher to $1,881.25 per ounce. Analysts speculated that a sharp sell in cryptocurrencies drove demand for Gold as a ‘safe haven’ asset.
Oil
Oil prices were volatile last week, with traders reacting to developments in a US-Iran nuclear deal, which may result in US imposed sanctions being removed. The Brent Crude spot price declining by 3.30% to reach $66.44 per barrel.