Market Commentary 5th July 2021 from Charlie Hancock

Posted by Niamh Bailey
Market Commentary 5th July 2021
Equity Indices
The FTSE 100 index declined by 0.18% last week, with declines in banks, insurers and travel related stocks weighing on the large cap index. The mid cap FTSE 250 gained 0.45%.

Investors reduced their exposure to UK stocks in the banking and insurance sectors last week, with Aviva seeing a 2.28% fall and Barclays declining by 1.42%. Housebuilders outperformed the broader index following data which showed UK house prices are rising at their fastest rate since 2004, with Persimmon gaining 2.13% and Barratt Developments rising by 1.57%.

Airlines and hotel companies experienced weakness after a number of countries imposed restrictions on travellers from the UK amidst concerns around rising Covid-19 cases. The owner of British Airways, International Consolidated Airlines Group, saw their share price decline sharply on Monday, before recovering some ground to finish the week down by 3.93%. Rolls-Royce Group, who are heavily reliant on their jet engines being used by airlines, saw their share price fall by 3.68%.

European equities saw mixed performance last week. The FTSE All World Index – Europe ex UK declined by 1.17%, with weakness in French and Italian equities weighing on the broad index. Germany’s DAX index gained 0.27% across the week.

Economic data for Europe was positive last week. A revised Purchasing Managers’ Index (PMI) reading was the highest ever recorded, with the manufacturing sector driving business expansion during June. Data for Eurozone consumer prices showed that the rate of inflation slowed in June, with the annual rate falling to 1.9% from the 2.0% recorded in May.

Sentiment appeared to be hampered by Covid-19 cases in Europe rising for the first time since April, with Portugal re-introducing an evening curfew as a result.

The major US equity indices moved higher last week. The S&P 500 gained 1.67%, the Dow Jones Industrial Average rose by 1.02% and the technology heavy NASDAQ 100 gained 2.67%.

Economic data appeared to encourage investors in the US last week. Employment data released on Friday showed that the US economy added 850,000 jobs during June, which was significantly ahead of expectations and the highest number recorded since summer 2020. The number of new weekly jobless claims was lower than expected. A closely watched consumer sentiment survey reached a pandemic high, whilst pending home sales defied expectations for a decline to rise by 8% during May.

Gains in US technology and e-commerce giants helped drive the broader indices higher last week, with Apple rising by 5.15%, Facebook moving 3.90% higher and Amazon gaining 3.22%.

Asian equity indices underperformed their global counterparts last week, with the broad FTSE All World Index – Asia Pacific declining by 1.52%. Japan’s Nikkei 225 fell by 0.97% and China’s Shanghai Composite Index moved 2.46% lower.

Whilst restrictions in Tokyo are set to end ahead of the Olympic Games commencing later this month, a rise in coronavirus cases appeared to weigh on sentiment for Japan last week. Prime Minister Suga stated that Olympic events may need to proceed without spectators if the situation regarding Covid-19 worsens.

Economic data for China was broadly positive, with official PMI data indicating business activity continued to rise during June. The reading for the manufacturing sector was slightly weaker than expected. With no clear driver for the weakness in Chinese stocks last week, some analysts speculated that quarter end rebalancing for domestic Chinese funds contributed to the declines.

Bond Yields
The 10-Year Gilt yield declined from 0.78% to 0.70% last week. Investors appeared to be in a slightly cautious mood last week amidst rising UK coronavirus cases, whilst comments from the Bank of England’s Governor, Andrew Bailey, also appeared to drive yields lower.

Mr Bailey stated that it is important to not overreact to temporarily strong inflation data and to ensure that the economic recovery is not undermined by premature monetary tightening.

The 10-Year German Bund yield fell from -0.16% to -0.24% last week.

The President of the European Central Bank, Christine Lagarde, stated that coronavirus variants pose a risk to the Eurozone’s economic recovery. Ms Lagarde’s comments appeared to prompt cautiousness amongst investors, who increased their exposure to German Bunds as a result.

The 10-Year US Treasury yield reversed the previous week’s rise by moving from 1.53% to 1.43% last week.

Investors in the US appeared to be in a risk-on mood, however, demand for longer dated US treasuries rose, with analysts citing quarter end rebalancing as the main driver.

GBP / USD – Current 1.3824 Previous 1.3879

GBP / EUR – Current 1.1659 Previous 1.1630

Sterling declined by 0.39% against the US Dollar, whilst rising by 0.25% against the Euro. Across the week there was little news flow to drive the Pound, whilst the US Dollar moved higher against most major currencies.

The Gold spot price moved marginally higher across the week, gaining 0.33% to reach $1,787.30 per ounce. After declining sharply in mid-June, demand for the precious metal has remained subdued.
Oil prices were volatile last week amidst disputes between OPEC members, however, across the week the Brent Crude spot price was flat, moving 1 cent lower to $76.17 per barrel.