Market Commentary 6th September 2021 from Charlie Hancock

Posted by Telford Mann

Market Commentary 6^th September 2021

Equity Indices

After a relatively subdued week, the FTSE 100 index finished 0.14% lower. The FTSE 250 gained 0.56% across the week, with a stronger Pound boosting the more domestically focused index.

Most sectors in the UK were stable last week, but sentiment on the travel sector continued to be impacted by coronavirus related issues. The European Union (EU) recommended that member states reimpose restrictions for travellers arriving from the United States. This contributed to the share price of International Consolidated Airlines Group, the parent company of British Airways, declining by 4.72% across the week.

Final readings for August Purchasing Managers Index (PMI) data showed that business activity slowed by more than previously estimated. The company behind the PMI data, IHS Markit, cited supply chain issues, labour shortages and slowing consumer demand as key factors for the decline in service sector growth.

Europe

The broad FTSE All World Index – Europe ex UK gained 0.76% across the week, whilst Germany’s DAX index moved 0.45% lower.

Coronavirus related headlines appeared to impact sentiment on equities, with the World Health Organisation (WHO) stating that a recent increase in European cases and deaths was “deeply worrying”. The WHO’s Director for Europe stated that the easing of restrictions and summer travel was partially to blame.

Economic data was mixed during the week. A closely watched economic sentiment index compiled by the European Commission declined during August, although this was somewhat expected given the all-time high reading for July. An initial estimate for Eurozone consumer price inflation showed that inflation accelerated by more than expected during August, with prices increasing at an annualised rate of 3%.

The major US equity indices were mixed last week. The Dow Jones Industrial Average declined by 0.24%, whilst the S&P 500 gained 0.58% and the technology heavy NASDAQ 100 rose by 1.42%.

Investors paid close attention to the August payroll report last week. Although the report showed the official unemployment rate declining to a new pandemic low of 5.2%, the US economy added significantly less than expected jobs in August. Non-farm payrolls grew by 235,000 during the month, well below consensus expectations of 750,000. The data suggested that a surge in delta variant infections is hindering parts of the economy, with very few jobs created in the leisure and hospitality sectors. Some analysts pointed to reducing labour supply, with the rate of job growth expected to slow at some point as the economy normalises.

The more economically sensitive Dow Jones index declined following the release of the jobs data, but the NASDAQ 100 rallied. Investors appeared to interpret the weaker than expected jobs data as a reason for the Federal Reserve to keep monetary policy loose for the foreseeable future.

Asia

Equity indices in Asia rallied last week, resulting in the broad FTSE All World Index – Asia Pacific gaining 3.84%. Japan’s Nikkei 225 moved 5.38% higher and China’s Shanghai Composite index rose by 1.69%.

Japanese equities rose amidst speculation of Prime Minister Yoshihide Suga resigning. On Friday, it was confirmed that Suga would not stand for re-election as leader of the ruling Liberal Democratic Party, signalling the end of his term as Prime Minister. With the uncertainty surrounding Suga’s tenure removed, investors reacted positively. The candidates seeking election as Suga’s replacement are also deemed to be in favour of greater fiscal spending, which appeared to boost investor sentiment last week.

Chinese PMI data suggested that business activity shrank during July, with the services index falling to the lowest level seen since February 2020. Analysts cited renewed lockdown restrictions due to delta variant outbreaks as driver for decline.

Bond Yields

UK government bond yields moved higher last week, with the 10-Year Gilt yield rising from 0.58% to 0.72%. The appointment of Huw Pill as the new chief economist at the Bank of England (BoE) appeared to contribute to the rise in Gilt yields, with speculation that Mr Pill will be in favour of hawkish policy.

Europe

The 10-Year German Bund yield climbed from -0.43% to -0.36% last week, with stronger than expected Eurozone inflation data providing upward pressure on yields. Comments from European Central Bank (ECB) officials who are in favour of winding down the bank’s bond purchase programme also appeared to contribute to the rise in yields.

The 10-Year US Treasury yield was broadly unchanged, rising from 1.31% to 1.32%. Economic data during the week was mixed, but the worse than expected jobs data appeared to provide some downward pressure for yields.

Currency

GBP / USD – Current 1.3871 Previous 1.3764

GBP / EUR – Current 1.1668 Previous 1.1665

Pound Sterling gained 0.78% against the US Dollar, whilst rising by a marginal 0.03% against the Eurozone currency.

Commodities

Gold

The Gold spot price gained 0.56% last week, reaching $1,827.73. The precious metal was broadly flat until Friday’s session, when confirmation of weak job creation during August appeared to increase demand for Gold.

Oil

Oil prices were relatively stable, with the Brent Crude spot price ending the week marginally lower at $72.61. The OPEC+ group of oil producing nations agreed to gradually continue raising oil output by 400,000 barrels per day during October. The group also raised their demand forecasts for 2022.