Market Commentary 26th July 2021 from Charlie Hancock

Concerns around rising Covid-19 cases weakening the global economic recovery intensified at the start of the week, resulting in investors rotating out of travel related stocks and cyclically exposed sectors, such as miners, oil companies and banks. Banking stocks recovered as the week progressed, with Barclays finishing the week 1.03% higher and Lloyds posting a gain of 0.37%. Royal Dutch Shell and BP were not able to recover all of the ground lost on Monday, finishing the week down by 1.97% and 2.79% respectively.

Economic data for the UK was mixed last week. Data showing that new factory orders expanded at the fastest pace on record painted an optimistic picture for the industrial sector, whilst Purchasing Managers Indices (PMIs) weakened in July. Activity in both services and manufacturing expanded at its slowest pace for 4 months, with shortages in staff and materials quoted as a contributing factor for the slowing pace of growth.

European equities suffered relatively steep declines on Monday, with concerns around rising Delta variant cases appearing to be the main driver for the negative sentiment. Encouraging Eurozone economic data helped to improve sentiment as the week progressed. A composite PMI survey, covering both the services and manufacturing sectors, indicated that business activity expanded at its fastest pace for 21 years in July. Growth in the manufacturing sector slowed in comparison to June, but services saw a rapid rise in activity as coronavirus restrictions were eased in many parts of the continent.

Dutch company ASML, which is one of the largest suppliers of equipment for microchip companies, reported 2^nd quarter earnings last week. Following a strong set of results, ASML hiked their 2021 sales forecast and announced a €9 billion share buyback programme. The company’s US listed shares gained 8.83% across the week.

An unexpected jump in US unemployment claims and July’s composite and services PMIs weakening from June added to concerns regarding a slowing economic recovery. The manufacturing PMI was a bright spot, with the index at the highest level since records began.

With earnings season underway in the US, last week saw several airlines report better than expected results amidst a rise in domestic travel. American Airlines reported their first profitable quarter since the start of the pandemic, helping the company’s stock recover from a 4.14% decline during Monday’s sell off in travel stocks. Across the week, American Airlines stock moved 7.12% higher.

Strong results from social media companies Twitter and Snap (operator of Snapchat) helped to fuel bullish sentiment for technology stocks on Friday. Across the week, Twitter gained 7.97% whilst Snap moved 31.57% higher.

Investor sentiment on Japanese equities appeared to be dented by outbreaks amongst athletes competing in the Tokyo Olympics and falling approval ratings for Prime Minister Suga. Economic data was mixed, with optimism around strong export growth balanced out by less buoyant consumer price index (CPI) data. The index showed the annual rate of inflation was 0.2% during June, with weak consumption resulting in relatively subdued inflation in comparison to most developed nations.

In the absence of any major Chinese economic data and little news flow regarding the regulatory issues which have impacted sentiment recently, equity indices in China were relatively stable last week.

The downward pressure on yields was partly driven by the European Central Bank (EBC) leaving key monetary policy unchanged and the dovish message delivered by the central Bank. The ECB specified that they will leave interest rates at the current level or lower until their forecasts for Eurozone inflation show this persisting at the target level of 2%.

GBP / EUR – Current 1.1681 Previous 1.1657

Sterling moved marginally lower against the US Dollar, falling by 0.14%, whilst moving marginally higher against the Euro with a rise of 0.21%.

Although the precious metal has previously risen at times when investors are nervous, Gold failed to gain any support during Monday’s sell off in equity markets.

Concerns around slowing economic growth, combined with a recent agreement between major oil producing nations to increase supply, saw sentiment on oil deteriorate quickly at the beginning of the week. The worries faded as the week progressed and prices recovered as a result.