Market Commentary 22nd June 2021 from Charlie Hancock

Posted by Niamh Bailey
Market Commentary 22nd June 2021
Equity Indices
The FTSE 100 fell by 1.63% last week amidst declines for most global equity indices. The mid-cap FTSE 250 index moved 1.80% lower.

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 19th July and said the vaccination programme will be accelerated.

European equity indices also suffered declines, with the broad FTSE All World Index – Europe ex UK moving 3.08% lower. Germany’s DAX index fell by 1.56%

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.

Equity indices in the US saw mixed performance, with the S&P 500 falling by 1.91% and the more cyclically exposed Dow Jones Industrial Average declining by 3.45%. The technology heavy NASDAQ 100 index moved 0.37% higher.

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%.

Asian equities saw mixed performance, with the broad FTSE All World Index – Asia Pacific moving 1.24% lower. China’s Shanghai Composite Index fell by 1.80%, whilst Japan’s Nikkei 225 outperformed with a gain of 0.05%.

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.

Bond Yields
The 10-Year Gilt yield moved higher across the week, rising from 0.71% to 0.75%.

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.

The 10-Year German Bund yield also climbed higher last week, moving from -0.27% to -0.20%.

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.

The 10-Year US Treasury yield finished the week 1 basis point lower at 1.44%, however, the yield spiked to 1.59% on Wednesday as investors interpreted comments from the Federal Reserve as hawkish. The central bank’s chairman, Jerome Powell, said that the bank has started to discuss slowing the pace of bond purchases. An official release following the meeting showed that the bank’s policymakers expect to implement 2 interest rate rises by the end of 2023.
GBP / USD – Current 1.3810 Previous 1.4107

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%.

The Gold spot price declined by 6.04% last week. Gold sold off heavily during the 2nd half of the week as the US Dollar (USD) appreciated.

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

Oil prices moved higher across the week, with traders still anticipating rising demand in the coming months. The Brent Crude spot price gained 1.13% to reach $73.51 per barrel.