Market Commentary 31st August 2021 from Charlie Hancock

Posted by Telford Mann

Market Commentary 31^st August 2021

Equity Indices

The FTSE 100 recovered some of the previous week’s decline, gaining 0.85%, but the internally exposed index was hindered by a stronger Pound Sterling. The mid-cap FTSE 250 index moved 1.30% higher to reach a new all-time high

Investors were bullish on companies benefitting from the easing of Covid-19 restrictions. Cruise operator Carnival gained 9.72% across the week, Cineworld Group rose by 6.51% and The Restaurant Group climbed by 4.59%. Commodity related stocks recovered from some of the declines seen during the previous week, with mining giant Anglo American gaining 7.51% and BP rising by 5.09%.

Headlines throughout the week highlighted concerns around the UK’s economic recovery as a result of supply chain issues. An initial reading for a closely watched composite UK Purchasing Managers’ Index recorded a heavy decline from July’s level, with the main slowdown in activity driven by the services sector.

Europe

The broad FTSE All World Index – Europe ex UK gained 1.65% across the week. Germany’s DAX index lagged others in the region, moving 0.28% higher. Sentiment on Europe as a whole was generally positive last week, supported by encouraging economic data and dovish comments from the European Central Bank (ECB).

A composite Eurozone PMI reading came in only marginally lower than the reading for July, suggesting that business activity remains firmly in expansionary territory. Bundesbank, Germany’s central bank, warned that the economic recovery may be weaker than expected during the remainder of the year, citing concerns around the Delta variant. German authorities announced plans to scrap free Covid testing in an effort to drive up vaccination rates.

The ECB’s chief economist told reporters last week that he believes current inflationary pressures will be temporary, with muted wage growth likely to dampen inflation over the longer term. These comments were echoed by another senior ECB member, who stated that the central bank continues to believe current supply side difficulties are temporary given their experience of past recoveries.

All major US equity indices recorded gains last week, led by the small-cap Russell 2000 which rose by 5.05%. The S&P 500 index gained 1.52%, the Dow Jones Industrial Average moved 0.96% higher and the NASDAQ 100 climbed by 2.26%.

US economic data was generally positive last week, with weekly jobless claims remaining close to their pandemic low and 2^nd quarter Gross Domestic Product (GDP) growth being revised slightly higher to 6.6%. The Food and Drug Administration (FDA) granting full approval for the Pfizer-BioNTech Covid-19 vaccine also boosted investor sentiment.

Investors paid close attention to a speech by Federal Reserve Chair, Jerome Powell, at the annual Jackson Hole conference on Friday. Powell stuck to the recent message from the central bank, citing the economic impact of rising Delta variant cases as a concern. As a result, there was no indication that the central bank will begin tapering their bond purchase programme until closer to the end of the year.

Asia

Asian equity indices outperformed most of their global counterparts last week. The broad FTSE All World Index – Asia Pacific gained 3.44%, whilst China’s Shanghai Composite Index rose by 2.77% and Japan’s Nikkei 225 climbed by 2.32%.

The People’s Bank of China reportedly told financial institutions to boost lending in order to support the economy, signalling that the central bank are likely to hold off tightening any monetary policy measures amidst a slowdown in the economic recovery. The securities regulator in China stated they would cooperative with US authorities on the audit of Chinese companies with US stock market listings, easing fears of some companies being de-listed by the US.

Investors in Japanese equities shrugged off concerns around rising Covid-19 cases. The government extended state of emergency measures to further regions and Prime Minister Suga stated that the rapid increase in cases is severely burdening the medical system.

Bond Yields

UK government bond yields rose last week, with the 10-Year Gilt yield reversing the previous week’s decline to move from 0.52% to 0.58%. Investors appeared to reduce their exposure to government debt in favour of equities across the week.

Europe

The 10-Year German Bund yield moved from -0.50% to -0.43% across the week. Demand for government debt across much of Europe declined, with positive Eurozone economic data and an increased risk appetite amongst investors driving the move.

The 10-Year US Treasury yield climbed from 1.26% to 1.31% last week, with encouraging US economic data supporting the rise in yields. The 10-Year yield moved lower during Friday’s session, with Jerome Powell stating that the Fed are monitoring rising Delta variant cases as they consider when it will be appropriate to tighten monetary policy.

Currency

GBP / USD – Current 1.3764 Previous 1.3623

GBP / EUR – Current 1.1665 Previous 1.1644

The Pound gained 1.04% against the US Dollar, with the Dollar losing ground against most major currencies. Against the Euro, Sterling was marginally higher with a gain of 0.18%.

Commodities

Gold

The Gold spot price rose by 2.05% last week to reach $1,817.57 per ounce. A weakening US Dollar appeared to provide some support for the precious metal last week.

Oil

Oil prices recouped their losses from the previous week, with the Brent Crude spot price rising by 11.54% to $72.70 per barrel. Oil traders put concerns around rising Delta variant cases to one side, whilst concerns around disruption to production in the Gulf of Mexico from Hurricane Ida also drove prices higher.