Market Commentary 14th June 2021 from Charlie Hancock

Posted by Telford Mann

Market Commentary 14^th June 2021

Equity Indices

The FTSE 100 rose by 0.92% last week, with the index boosted by strong performance in energy and pharmaceutical stocks. The prospect of a delay in the easing of lockdown restrictions in England weighed on the more domestically focussed FTSE 250 index, which declined by 0.43%.

Healthcare related stocks were in focus around the globe last week, with AstraZeneca and GlaxoSmithKline benefitting from positive sentiment on the sector. The pharmaceutical giants saw their share prices rise by 3.54% and 3.63% respectively.

UK economic data was positive last week and suggested that the easing of Covid-19 restrictions has helped drive activity in recent months. Gross Domestic Product (GDP) data for April showed that the economy expanded at its fastest pace since July 2020, with growth of 2.3%. A consumer confidence gauge compiled by YouGov climbed to its highest level since April 2016.

Europe

European equity indices were mixed last week. The broad FTSE All World Index – Europe ex UK gained 0.74%, lifted by strong performance in Swiss and French equities. Germany’s DAX index was flat across the week.

Investors appeared encouraged by the European Central Bank (ECB) leaving key policy measures unchanged. The central bank raised their economic growth forecasts for 2021 and 2022, whilst stating they will maintain their emergency bond purchasing programme throughout the next quarter.

The European Parliament approved proposals for ‘vaccine passports’, with the aim of allowing restriction free travel within the European Union. Travel related stocks received a boost as a result, with Irish airline Ryanair gaining 2.38% across the week. Hotel operator Accor, which is Europe’s largest hospitality company, saw their share price rise by 2.73%.

Equity indices in the US were mixed last week. The S&P 500 index gained 0.41%, whilst the Dow Jones Industrial Average declined by 0.80%. The technology heavy NASDAQ 100 gained 1.65%.

Investors continued to pay close attention to inflation last week and official data released on Thursday showed the headline rate of inflation climbed to 5% during May, reaching its highest level since 2008. Stocks rose following the release of the data, suggesting that investors agree with the Federal Reserve’s outlook for the rise in inflation being short lived.

Healthcare was the strongest performing sector in the US last week, after the Food & Drug Administration (FDA) approved a new treatment for Alzheimer’s disease developed by drugmaker Biogen. A decline in US treasury yields weighed on the financial sector, with the Dow Jones index losing ground as a result. Goldman Sachs saw their share price decline by 3.37%, whilst JPMorgan Chase & Co fell by 3.77%.

Asia

Major equity indices in Asia were broadly flat across the week, with Japan’s Nikkei 225 moving 0.03% higher and China’s Shanghai Composite index declining by 0.06%. The broad FTSE All World Index – Asia Pacific moved 0.18% lower.

The Japanese government reported that GDP during the first quarter contracted by less than previously estimated, which appeared to help ease concerns regarding the possibility of a double dip recession. Coronavirus cases in Japan continued to fall sharply.

Sentiment on Chinese e-commerce and internet stocks turned negative again last week, with Alibaba declining by 3.37%, Tencent moving 3.63% lower and JD.com falling by 5.62%. China’s Consumer Price Index (CPI) increased by 1.3% in May, which was below analyst expectations and cooled expectations for the People’s Bank of China raising interest rates in the near future.

Bond Yields

The 10-Year Gilt yield declined from 0.79% to 0.71% last week. UK government bond yields broadly tracked yields around the globe, whilst concerns around a rise in coronavirus cases driven by the ‘Delta’ variant also appeared to prompt increased demand for Gilts.

Europe

The 10-Year German Bund yield declined from -0.21% to -0.27%.

The ECB confirming they would maintain their emergency bond purchase programme appeared to add to the downward pressure on yields last week. Whilst the central bank raised their inflation forecast for 2021, ECB president Christine Lagarde pointed out to reporters that there is little pressure on the price of services at present, due to relatively weak wage growth. The central bank expects inflation to slow after 2021.

The 10-Year US Treasury yield fell relatively sharply last week to reach the lowest level seen since early March. The 10-Year yield moved from 1.56% to 1.45% as the probability of an interest rate hike in the near future declined. Investors appeared unphased by May’s inflation data and appeared to agree with expectations for the rise in inflation to be a temporary factor.

Currency

GBP / USD – Current 1.4107 Previous 1.4157

GBP / EUR – Current 1.1632 Previous 1.1642

Sterling lost ground against the US Dollar, falling by 0.35%, but was only marginally weaker against the Euro with a decline of 0.09%. UK-EU disagreements regarding implementation of the Northern Ireland protocol appeared to dent confidence on Sterling, whilst the possibility of an extension to lockdown restrictions in England also weighed on sentiment.

Commodities

Gold

Gold remained out of favour last week after failing to hold above the $1,900 mark, with the spot price falling by 0.74% to $1,877.53 per ounce.

Oil

The recent strength in oil prices continued last week, fuelled by expectations of demand climbing during the 2^nd half of 2021 and the US stating that sanctions against Iran are unlikely to be lifted. The Brent Crude spot price gained 1.11% to reach $72.69 per barrel.