Market Commentary 22nd June 2021 from Charlie Hancock

The FTSE 100 index remained in positive territory during the first half of the week, before declines in heavyweight mining and financial stocks dragged the index lower. Across the week, Glencore moved 9.59% lower and rival Anglo American declined by 13.65%. In the banking sector, Barclays declined by 4.73% and Lloyds Banking Group saw their share price fall by 4.07%.

Rising Covid-19 cases and the announcement of a delay to the full easing of lockdown restrictions in England appeared to add to the negative sentiment for UK risk assets. Prime Minister Boris Johnson announced a delay to the full easing of lockdown measures until 19^th July and said the vaccination programme will be accelerated.

European equities struggled last week as investors reduced exposure to cyclical sectors. The banking sector was particularly weak, with Deutsche Bank falling by 8.62% and Banco Santander declining by 6.18%.

Headlines were broadly positive, with coronavirus restrictions eased further in most nations and the European Union (EU) signing off fiscal support plans for Spain and Portugal as part of the €800 billion EU recovery fund. Industrial production data came in stronger than expected, with output in April almost 40% higher than during the same period in 2020.

US equity indices saw relatively subdued movements during the first half of the week, before investors began to analyse comments from Federal Reserve officials following their June policy meeting.

With the central bank standing by previous comments regarding rising inflation being a short-lived factor, investors reduced their exposure to sectors which would benefit from continued inflationary pressures, such as commodities and stocks in the financial sector. Across the week, America’s largest mining company, Newmont, declined by 10.91%, whilst banking giant Goldman Sachs fell by 7.81%.

Positive news flow contributed to sentiment on Japanese equities. Covid-19 restrictions were eased as new infections continued to decline, whilst the Japanese government looked at plans to allow 10,000 spectators at the upcoming Tokyo Olympics. The Bank of Japan left key monetary policy unchanged and announced measures to support climate friendly businesses via special lending facilities.

Economic data in China was mixed. Retail sales during May were weaker than expected, however, unemployment declined to just above the pre pandemic rate. Chinese internet and e-commerce stocks outperformed the wider market, with most in positive territory across the week.

The rise in yields appeared to be partly driven by stronger than expected inflation data for May. Consumer prices rose at an annual rate of 2.1%, ahead of the Bank of England’s 2.0% target.  Much of the increase was driven by rising prices for fuel, clothing and restaurant food, reflecting increased demand for these goods and services as lockdown measures were eased.

European government bond yields rose in the wake of the Federal Reserve’s policy meeting, with the US central bank indicating that they will hike interest rates sooner than previously anticipated.

GBP / EUR – Current 1.1632 Previous 1.1657

Sterling lost ground against the US Dollar, declining by 2.11%, with the greenback appreciating during the week as traders priced in expectations for the Federal Reserve tightening monetary policy. The Pound moved marginally lower against the Euro with a fall of 0.21%.

With most trades for the precious metal priced in USD, a stronger greenback makes Gold less attractive to investors holding other currencies.