Market Commentary 7th June 2021 from Charlie Hancock

Posted by Niamh Bailey
Market Commentary 7th June 2021
Equity Indices
Investors were generally in a positive mood last week. Both the large cap FTSE 100 and mid cap FTSE 250 rose by 0.66%.

The FTSE 100 was boosted by gains for oil and mining related stocks. Across the week, Royal Dutch Shell and BP saw their share price rise by 3.46% and 4.34% respectively, with investors shrugging off the previous week’s court ruling against Royal Dutch Shell. In the mining sector, Anglo American gained 3.81%, whilst competitor Glencore rose by 2.58%.

With concerns around Covid-19 variants prompting the UK government to implement further travel restrictions, budget airline easyJet declined by 7.20% across the week. IAG, the parent company of British Airways, saw their share price fall by 3.09%.

European equity indices moved higher last week, with the broad FTSE All World Index – Europe ex UK rising by 0.84%. Germany’s DAX index gained 1.11%.

Headlines in Europe were broadly positive, with unemployment in Germany declining by more than expected and German Chancellor Angela Merkel announcing an end to the emergency powers which were granted to implement Covid-19 restrictions nationwide. Lockdown measures in Germany are set to ease further amidst falling case numbers. Reports last week also suggested that the European Union will lift quarantine rules for those who have been fully vaccinated from the 1st July.

Eurozone retail sales data for April was weaker than expected, however, investors did not appear concerned, with the outlook for consumer spending having improved significantly during May as the vaccination programme gathered pace.

Equity indices in the US advanced last week, with the S&P 500 gaining 0.61%, the Dow Jones Industrial Average rising by 0.66% and the NASDAQ 100 climbing by 0.62%. Sentiment was mixed throughout the week amidst light trading volumes.

Energy was the best performing sector in the US equity market last week, with strengthening oil prices price boosting stocks as such Exxon Mobil (+5.26%) and Chevron (+4.51%). Some of 2020’s best performing stocks remained out of favour, with Tesla declining by 4.19% and Netflix falling by 1.60%.

Investors paid close attention to employment data, with the US economy adding a lower than expected number of jobs during May. US equity indices rose following the release of the jobs report, with investors viewing the data as justification for the Federal reserve keeping monetary policy loose. Economists noted that the number of people employed in the US is still around 7.6 million lower than its pre-pandemic peak.

Asian equity markets saw mixed performance last week. The FTSE All World Index – Asia Pacific moved 1.10% higher, with strong performance for the Australian and Taiwanese stock markets lifting the broad index. After outperforming during the previous week, equity indices in Japan and China were relatively weak, with the Nikkei 225 falling by 0.71% and the Shanghai Composite Index moving 0.25% lower.

The Japanese government extended the Covid-19 state of emergency until one month before the start date for the 2021 Olympic Games. Uncertainty around whether the Olympics will proceed as planned appeared to weigh on investor sentiment. A closely watched services Purchasing Managers’ Index (PMI) contracted sharply during May, with coronavirus related restrictions impacting consumer sectors of the economy. On the positive side, household spending rose sharply during April and the Organization for Economic Cooperation and Development (OECD) revised their Japanese economic growth forecasts higher.

After rising strongly during May, Chinese equity indices traded sideways last week. Sentiment on the popular e-commerce and internet companies continued to improve however, with Alibaba gaining 2.35%, Pinduoduo rising by 5.84% and seeing a 2.02% gain.

Bond Yields
The 10-Year Gilt yield was flat across the week at 0.79%. The 10-Year yield spiked to 0.84% during the middle of the week, with strong economic data such as a record high UK manufacturing PMI reading fuelling expectations for interest rate rises. During the latter part of the week, gilt yields moved lower in line with government bonds elsewhere around the globe.
The 10-Year German Bund yield moved lower across the week, from -0.19% to -0.21%.  Whilst inflation data for the Eurozone in May was stronger than expected, yields were driven lower by comments from European Central Bank (ECB) officials, who hinted at the bank maintaining the current pace of bond purchases beyond their June policy meeting.
The 10-Year US Treasury yield declined across the week, moving from 1.60% to 1.56%.

Friday’s weaker than expected jobs report appeared to calm expectations of the Federal Reserve tightening policy in the near future. Two officials from the central bank stated earlier in the week that there is significant ‘slack’ remaining in the US economy and that the Fed is far from achieving its inflation and employment targets.

GBP / USD – Current 1.4157 Previous 1.4212

GBP / EUR – Current 1.1642 Previous 1.1624

Sterling moved 0.39% lower against the US Dollar, whilst gaining 0.15% against the Euro. Sentiment on Sterling was mixed with currency traders weighing up strong UK economic data against the possibility of lockdown restrictions being extended beyond the 21st June. The US Dollar strengthened during the early part of the week, but cooled off following the weaker than expected jobs data on Friday.

After rising for several weeks in a row, Gold moved slightly lower last week. The spot price fell by 0.80% to $1,891.59 per ounce.
Oil prices strengthened, with the Brent Crude spot price gaining 3.71% to reach $71.89 per ounce. The OPEC+ group of oil producing nations agreed to continue scaling back production cuts until 1st July, with oil traders viewing this as a bullish signal for demand in the coming months.