Market Commentary 1st June 2021 from Charlie Hancock

Posted by Niamh Bailey
Market Commentary 1st June 2021
Equity Indices
During a fairly subdued week for the UK’s headline index, the FTSE 100 recorded a slight increase of 0.06%. The FTSE 250 index rose by 1.27%.

UK headlines regarding the pandemic were less positive last week, with Health Secretary Matt Hancock stating that it’s too early to say whether the lifting of all restrictions on the 21st June can proceed. The uncertainty hit stocks in the leisure sector, with Restaurant Group PLC declining by 3.96% on Friday.

With performance in heavyweight stocks mixed last week, the FTSE 100 was broadly flat. Sentiment on the banking sector was positive, with HSBC’s share price gaining 3.09% and Lloyds Banking Group rising by 2.93%. Oil stocks were weak, with Royal Dutch Shell declining by 4.21% and BP falling by 1.94%. Whilst crude prices moved higher across the week, sentiment on oil producers was knocked by a court case in the Netherlands, with the court ruling that Shell must cut their emissions by 45% before 2030.

All major European equity indices moved higher last week, resulting in the broad FTSE All World Index – Europe ex UK gaining 1.14%. Germany’s DAX index rose by 0.53%.

Economic data in Europe was mixed. A closely watched business sentiment index showed improvements for France and Germany, whilst revised Gross Domestic Product (GDP) data showed that the French economy fell into a recession during the first quarter of 2021.

The world’s largest aeroplane manufacturer, Airbus, stated they will ramp up production amidst signs of the aviation sector beginning to recover from the Covid-19 shock. The company’s Paris listed shares rose by 8.94% across the week.

US equity indices moved higher, with the S&P 500 gaining 1.16%, the Dow Jones Industrial Average rising by 0.94% and the NASDAQ 100 recording a gain of 2.05%.

Economic data for the US painted a mixed picture. Weekly jobless claims declined to a new pandemic low, whilst consumer sentiment faded during May and some evidence of the housing market cooling off emerged via lower than expected pending home sales.

President Biden set out his first budget proposal to the US Congress, with plans for $6 trillion of spending during 2022. The spending plans include large scale infrastructure investment, with a focus on education and tackling climate change. The market reaction was muted, with many expecting the plans to be fiercely debated by Congress over the coming months.

Asian equity indices were lifted by strong performance in Chinese and Japanese stocks. The broad FTSE All World Index – Asia Pacific gained 1.98%, whilst Japan’s Nikkei 225 climbed by 2.94% and China’s Shanghai Composite Index rose by 3.28%.

Stocks in the leisure sector rose after China reached a milestone of 500 million Covid-19 vaccinations, whilst investor sentiment on the Chinese internet and e-commerce giants continued to improve. Financial regulators in Beijing continued to display a relatively strict approach, clamping down on commodity speculation and cryptocurrency mining.

Japanese equities rallied, with investors shrugging off a worsening Covid-19 situation and weak economic data showing a rise in unemployment and continued deflationary pressures. Authorities commenced the roll out of a mass vaccination programme for elderly residents in Tokyo and Osaka.

Bond Yields
The 10-Year Gilt yield declined across the week, moving from 0.83% to 0.79%.

After falling as low as 0.75% at the start of the week, yields jumped on Thursday following comments from a senior Bank of England (BoE) policymaker, Gertjan Vlieghe. During a lecture at the University of Bath, Vliegie suggested that interest rates could rise at some point during 2022.

The 10-Year German Bund yield moved lower across the week, falling from -0.13% to -0.19%.

Dovish comments from European Central Bank (ECB) policymakers saw Bund yields decline during the early part of the week. ECB officials said that there was no evidence of sustained inflationary pressures and that a reduction in the central bank’s bond buying programme would be premature.

The 10-Year US Treasury yield moved slightly lower, falling from 1.62% to 1.60%.

The US central bank continued to cast doubt on theories of inflation spiralling out of control. Officials from the Federal Reserve said that consumer prices in the coming months may increase due to supply shortages, but much of the increases should prove temporary.

GBP / USD – Current 1.4212 Previous 1.4150

GBP / EUR – Current 1.1624 Previous 1.1617

The Pound gained 0.44% against the US Dollar, but was broadly flat against the Euro with an increase of 0.06%. Sterling experienced a brief rally on Thursday, following hawkish comments from BoE official, Gertjan Vlieghe, but faded as the week drew to a close.

Gold continued its recent trend, with the spot price rising by 1.36% to reach $1,906.87 per ounce. With regulators in Beijing raising import quotas, reports of increased demand from China appeared to add to the positive sentiment on Gold last week.
Oil prices recovered from the previous week’s decline, with the Brent Crude spot price rising by 4.33% to reach $69.32 per barrel. Whilst negotiations around a US-Iran nuclear deal stalled, oil traders appeared encouraged by speculation around the OPEC+ oil producing group easing production cuts further.