Market Commentary 9th August 2021 from Charlie Hancock

HSBC reported better than expected profits for the first half of 2021 and announced that dividends would resume. The bank stated that they were profitable in every region, but the UK was a particularly strong area. HSBC’s UK lending business experienced a record quarter for mortgages amidst a buoyant housing market. Across the week, the bank’s share price gained 3.12%.

Defence and Engineering company Meggitt PLC, which is a constituent of the FTSE 250, agreed a takeover offer from US firm Parker-Hannifin for $8.8 billion on Monday.  The bid of £8 per share represented a premium of around 70% based on the company’s share price prior to the announcement. Asset management company Sanne Group, who are also a member of the FTSE 250 index, said they were considering selling the business to private equity firm Apex Group. Experian published data last week showing that private equity buy-outs in the UK reached record levels during the first half of 2021.

Sentiment on European equities was boosted by encouraging earnings results.  French bank Societe Generale saw their share price gain 11.36% across the week, after posting better than expected 2^nd quarter earnings and announcing a share buyback scheme of around €470 million. The bank said profits were lifted by strong activity in retail banking, particularly for mortgage and consumer credit products.

Investors shrugged off data showing that German industrial output unexpectedly declined during June, with supply chain disruptions seemingly having a detrimental impact. Rising coronavirus cases across much of the continent also had little impact on investor sentiment.

In comparison to their global counterparts, US indices had a relatively choppy week, with investors weighing up rising coronavirus cases against corporate earnings and economic data. Surging cases in states with low vaccine take up prompted concerns of hospitals in some areas becoming overwhelmed.

Official data released on Friday showed that the US economy added 943,000 jobs in June, significantly above economist expectations for 858,000 additions. The US unemployment rate declined to a pandemic low of 5.4%. A strong labour market may bring forward the expected timeline for the Federal Reserve raising interest rates or tapering their bond purchase programme, however, investors reacted positively to the data, with US indices rising during Friday’s session.

Official Chinese Purchasing Managers Index (PMI) data indicated that business activity grew at a slower pace in July, with both the manufacturing and services indices falling in comparison to the readings for June. Outbreaks of coronavirus cases, which have prompted restrictions in some regions, appeared to be one factor behind the slowing economic momentum. The PMI data appeared to reduce expectations of monetary tightening by the People’s Bank of China, with government bond yields declining across the week.

Economic data for Japan was disappointing, with consumer spending declining amidst rising coronavirus cases and a closely watched composite PMI falling in July.  The International Monetary Fund (IMF) downgraded their 2021 Japanese economic growth forecasts, with Japan being the only G7 nation to see a downgrade.

The Bank of England’s monetary policy committee left the UK base rate unchanged at 0.10% and voted to maintain the bank’s bond purchase programme at £875bn. The bank lowered their forecasts for 2021 economic growth and raised their expectations for inflation, with consumer prices expected to rise an annual rate of 4% during the final quarter of this year. Fixed income markets appeared unphased by some hawkish remarks from officials at the bank, with the surge in yields on Friday coming in the wake of the US jobs report.

German Bunds bucked the trend amongst developed fixed income markets last week. Data showing a fall in output from German manufacturers contributed to the decline in yields, together with subdued Eurozone producer price inflation.

GBP / EUR – Current 1.1798 Previous 1.1715

Sterling declined by 0.23% against the US Dollar, with the greenback seeing notable strength on Friday following better than expected labour market data. Against the Euro, Sterling gained 0.71%.