Market Commentary 29th June 2021 from Charlie Hancock

Posted by Niamh Bailey
Market Commentary 29th June 2021
Equity Indices
UK
The FTSE 100 rose by 1.69% last week to fully recover from the previous week’s decline. The mid-cap FTSE 250 index posted a gain of 1.44%.

Royal Dutch Shell climbed by 6.45% as crude oil prices rose, whilst rival BP saw their share price gain 3.20% across the week. Stocks in the mining sector also shrugged off recent declines, with Anglo American rising by 9.16% and Glencore gaining 5.93%.

A survey carried out by the Confederation of British Industry (CBI) showed that retail sales in June rose at their fastest pace for nearly three years. The CBI suggested that progress in the UK’s vaccination programme is translating into improved consumer confidence. A composite Purchasing Managers Index (PMI), which covers both the services and manufacturing sectors, showed business activity continued to rise at a strong pace during June.

Europe
European equity indices moved higher last week, with the broad FTSE All World Index – Europe ex UK climbing by 1.97%. Germany’s DAX index gained 1.04%.

A composite PMI for the Eurozone showed business activity gathered further momentum during June, climbing at its fastest pace since 2006. Comments from the European Central Bank’s president, Christine Lagarde, also appeared to add to the positive sentiment amongst investors. Ms Lagarde explained that the central bank does not want to withdraw monetary support too early and added that temporary factors causing a rise in inflation will subside during the 2nd half of the year.

European banking stocks regained some of the ground lost during the previous week, with Banco Santander rising by 3.55%. Swiss banking giant, Credit Suisse Group, saw their share price climb by 4.68%.

US
All major US equity indices moved higher last week. The S&P 500 gained 2.74% and the NASDAQ 100 rose by 2.10%, with both indices reaching new all-time highs. The Dow Jones Industrial Average recovered most of the previous week’s decline to post a gain of 3.44%.

Economic data in the US last week was mixed, with a stronger than expected June PMI reading for the manufacturing sector, weaker than expected consumer spending during May and an unexpected rise in weekly jobless claims. Concerns about rising inflation continued to dissipate, with prices for raw materials such as lumber and metals declining as supply chain issues appeared to ease.

President Joe Biden announced a new infrastructure spending plan for the next 5 years. Biden said the bill has bipartisan support and would result in spending of around $1 trillion. Many political commentators in the US believe the bill could be significantly altered, with the current plans receiving criticism from both Democratic and Republican members of congress.

Asia
Asian equity markets were mixed last week. The broad FTSE All World Index – Asia Pacific gained 0.83%, whilst Japan’s Nikkei 225 moved 0.35% higher. China’s Shanghai Composite Index recovered from the previous week’s decline, gaining 2.34%.

A composite PMI for Japan declined during June, suggesting a slowdown in the pace of economic recovery. The manufacturing sector expanded at its slowest pace since February. Japan reported more than 1 million daily Covid-19 vaccine doses during the first half of June, adding to hopes of restrictions being eased ahead of the Tokyo Olympics.

Chinese technology and e-commerce stocks rallied, with a report of strong sales growth from JD.com boosting sentiment. Across the week, JD.com saw their share price gain 9.23%, whilst Alibaba rose by 7.81%.

Bond Yields
UK
The 10-Year Gilt yield rose from 0.75% to 0.78% last week.

The Bank of England’s monetary policy committee voted to keep interest rates on hold at 0.1% last week. The central bank also maintained the current pace of corporate bond purchases and voted to keep the size of their quantitative easing programme unchanged at £875 billion. The central bank’s post meeting report said that inflation would likely rise above 3% for a short period this year, but warned against premature monetary tightening.

Europe
The 10-Year German Bund yield rose from -0.20% to -0.16% last week.

Whilst the ECB chief, Christine Lagarde, maintained a dovish message during a meeting with EU officials last week, Eurozone government bond yields rose amidst strong economic data.

US
The 10-Year US Treasury yield climbed from 1.44% to 1.53% last week. Yields rose on Friday after a spike in the personal consumption expenditures (PCE) index, which is the Federal Reserve’s preferred measure of inflation.

Jerome Powell, Chairman of the Federal Reserve, re-iterated during a testimony to the US congress that the current spike in inflation will be temporary, with investors not anticipating any interest rate rises until 2023 as a result.

Currency
GBP / USD – Current 1.3879 Previous 1.3810

GBP / EUR – Current 1.1630 Previous 1.1632

The Pound gained 0.50% against the US Dollar, with the greenback weakening against most major currencies across the week. There were no major drivers for Sterling last week and against the Euro, GBP was broadly flat (-0.02%).

Commodities
Gold
Gold failed to recover from the heavy decline experienced during the previous week, with the spot price rising by just 0.98% to $1,781.44 per ounce.
Oil
Oil prices strengthened last week, with the Brent Crude spot price gaining 3.63% to reach $76.18 per barrel. Analysts cited rising demand as Covid-19 restrictions are eased in developed nations, whilst a lack of progress in US-Iran talks reduced the likelihood of Iranian oil supply increasing in the near future.