Market Commentary 13th September 2021 from Charlie Hancock

Posted by Niamh Bailey
Market Commentary 13th September 2021
Equity Indices
UK
The FTSE 100 declined by 1.53% last week, whilst the FTSE 250 index moved 1.91% lower. Risk appetite amongst investors appeared to deteriorate due to concerns around the economic recovery and building inflationary pressures. The announcement of a National Insurance (NI) hike also appeared to impact sentiment on UK equities, with business groups warning the tax rise will cost jobs and hit the economy.

Andrew Bailey, governor of the Bank of England (BoE), stated on Wednesday that the UK’s economic recovery is slowing, citing supply chain disruption and staff shortages as key issues. Gross Domestic Product (GDP) figures which were released on Friday supported Mr Bailey’s comments, with the data showing that the UK economy grew by 0.1% during July. This indicated a sharp slowdown from June’s growth of 1% and was significantly lower than forecasts of 0.6%.

FTSE 250 constituent, easyJet PLC, saw their share price decline by 13.54% last week. The budget airline announced plans for a rights issue to raise £1.2 billion, whilst rejecting a takeover offer from Hungarian rival, Wizz Air.

Europe
European equity indices also suffered declines last week, with the broad FTSE All World Index – Europe ex UK falling by 1.48%. Germany’s DAX index moved 1.09% lower.

The European Central Bank (ECB) announced that they will slow the rate of bond purchases under their pandemic emergency purchase programme, after increasing the pace to around €80 billion per month earlier this year. Christine Lagarde, the ECB’s chief, was keen to specify that they are not tapering their bond purchase programme, just adjusting the pace of purchases. The market reaction was muted, with analysts expecting the ECB to slow purchases by a modest amount to between €60billion and €70 billion per month.

The ECB also revised their 2021 economic growth and inflation forecasts higher, with the central bank expecting Eurozone GDP to expand by 5% and inflation to be 2.2%. The ECB predicts inflation will peak at 3.1% in the final quarter, before slowing to 1.7% in 2022 and 1.5% in 2023.

US
Equity indices in the US moved lower, with the more economically sensitive Dow Jones Industrial Average suffering the steepest decline of 2.15%. The S&P 500 fell by 1.69%, whilst the technology heavy NASDAQ 100 lost 1.36%.

The US Producer Price Index, which tracks how much suppliers are charging for their goods and services, rose by 8.3% year-on-year in August. The rise was bigger than expected and added to concerns around inflationary pressures. Further evidence of a tight labour market also added to worries regarding inflation, with weekly jobless claims continuing to decline.

President Biden announced that Covid-19 vaccinations would be made mandatory for government employees and contractors, whilst stating that large employers must either require their workforce to be vaccinated or take weekly tests.

Asia
Asian equities outperformed last week, with China’s Shanghai Composite Index rising by 3.39% and Japan’s Nikkei 225 gaining 4.30%. The broad FTSE All World Index – Asia Pacific saw a relatively muted gain of 0.87%.

Better than expected data on exports and imports added to the positive sentiment on Chinese equities, whilst investors also appeared to be encouraged by talks between President Xi and President Biden. The pair spoke for the first time since February, with the Biden administration stating that the discussion was “broad and strategic” and China’s foreign ministry describing the talks as “candid”.

The leading candidates to replace Japan’s Prime Minister Suga set out pledges for further fiscal spending plans last week, with investors reacting favourably to the prospect of further stimulus. The governor of the Bank of Japan (BoJ), Haruhiko Kuroda, stated the central bank would keep loose monetary policy measures to enhance the effect of fiscal policy.

Bond Yields
UK
UK government bond yields experienced upward pressure last week, with the 10-Year Gilt yield rising from 0.72% to 0.76%.

The BoE governor, Andrew Bailey, revealed to a parliamentary group that the central bank’s monetary policy committee was divided on the issue of raising interest rates. This appeared to add to expectations of some monetary tightening in the near future, with Gilt yields rising as a result.

Europe
The 10-Year German Bund yield rose from -0.36% to -0.33% across the week.

Bund yields rose strongly during the first half of the week, before pulling back slightly after the ECB president, Christine Lagarde, re-iterated that the central bank was not tapering the overall size of their bond purchase programme.

US
The 10-Year US Treasury yield moved marginally higher across the week from 1.32% to 1.34%.

Treasury yields declined throughout most of the week, with investors seemingly rotating away from equities and into government bonds, however, the stronger than expected rise in US producer prices appeared to drive yields higher on Friday.

Currency
GBP / USD – Current 1.3839 Previous 1.3871

GBP / EUR – Current 1.1708 Previous 1.1668

The Pound declined by 0.23% against the US Dollar, whilst gaining 0.34% against the Euro. Whilst the announcement of a NI hike appeared to prompt a decline on Tuesday, Sterling recovered across the remainder of the week.

Commodities
Gold
The Gold spot price declined by 2.20% to reach $1,787.58 per ounce. A sell off during Tuesday’s session saw the precious metal give up all of the gains experienced over the previous fortnight.
Oil
Oil prices remained steady across the week, with the Brent Crude spot price rising by 0.43% from $72.61 to $72.92. China reportedly sold some of their state reserves in an attempt to lower crude prices, offsetting concerns around supply disruption from Hurricane Ida.