Market Commentary 16th November 2021 from Charlie Hancock

Posted by Telford Mann

Market Commentary 16^th November 2021

Equity Indices

The FTSE 100 index gained 0.60% across the week, whilst the more domestically exposed mid-cap FTSE 250 declined by 0.17%.

The large cap FTSE 100 was boosted by relatively strong performance in banking and mining stocks. Speculation that the Bank of England (BoE) will proceed with raising interest rates in December helped bank shares to recover some of the previous week’s losses, with Barclays PLC rising by 1.52%. Rising copper and aluminium prices boosted the performance for mining companies, with Anglo American PLC gaining 5.99%.

Official data showed that the UK economy grew by less than expected during the third quarter of the year, with Gross Domestic Product (GDP) rising by 1.3% versus BoE forecasts for 1.5%. At the end of the quarter, the UK economy was 2.1% smaller than its pre pandemic peak.

Europe

European equity indices were mixed last week. Germany’s DAX index gained 0.25% and France’s CAC 40 rose by 0.72%. Weaker performance in Italian equities weighted on the broad FTSE All World Index – Europe ex UK, which declined by 0.46%.

Consumer Price Inflation (CPI) in Germany rose to 4.5% in October, with surging energy prices being a significant driver for inflation during the month. The European Central Bank (ECB) chief economist, Philip Lane, warned during a speech on Monday that raising rates prematurely would hurt the Eurozone economy. Mr Lane added that there are solid reasons to believe that inflation will decline over the next year.

With many continental European nations experiencing a surge in coronavirus infections, speculation regarding winter restrictions grew. Reports suggested that the Dutch government were considering a short partial lockdown. Concerns around tensions between Russia and Ukraine intensified during the week, whilst disputes between the EU and Russia regarding gas supplies continued.

Equity indices in the US moved lower last week, with the S&P 500 falling by 0.31%, the Dow Jones Industrial Average declining by 0.63% and the NASDAQ 100 losing 0.97%. Investor sentiment appeared to be impacted by rising inflation and deteriorating consumer confidence.

CPI in the US during October rose to an annual rate of 6.2%, ahead of the 5.8% expected by economists. The rate of inflation was the highest recorded since 1990, with supply chain issues continuing to drive up prices.

A closely watched consumer sentiment index compiled by the University of Michigan declined to the lowest level recorded since 2011, indicating that rising prices could lead to weaker consumer spending over the coming months.

Asia

Equity indices in Asia were mixed last week, with Japan’s Nikkei 225 flat (-0.01%) and China’s Shanghai Composite Index rising by 1.36%. The broad FTSE All World Index – Asia Pacific moved 0.69% higher.

Reports suggested that the Japanese Prime Minister, Fumio Kishida, was making preparations to announce a fiscal stimulus package worth around $265 billion. The package is likely to include stimulus payments to children and salary increases for some public sector employees.

Worries around the Chinese property sector remained at the forefront last week, with Evergrande narrowly avoiding a default on some of their international debt. CPI in China rose to 1.5% in October, whilst producer prices rose by 13.5% in comparison to October 2020. Consumer spending appeared to be in robust health, with e-commerce giant Alibaba reporting record sales of $85bn on their 11^th November Singles Day event. Across the week, Alibaba’s share price rose by 5.00%.

The 10-Year Gilt yield moved higher across the week, rising from 0.84% to 0.91%. Yields reversed some of the heavy decline experienced during the previous week, with bond traders anticipating the BoE will proceed with an interest rate rise in December.

Europe

The 10-Year German Bund yield was relatively stable, moving from -0.28% to -0.26%. The ECB maintained a dovish stance, with an interest rate rise during the first half of 2022 unlikely based on recent comments from policymakers at the central bank.

US Treasury Yields reversed some of their recent decline, with a stronger than expected inflation print providing upward pressure. The 10-Year Treasury rose from 1.45% to 1.56% across the week.

Currency

GBP / USD – Current 1.3414 Previous 1.3498

GBP / EUR – Current 1.1723 Previous 1.1666

The Pound moved 0.62% lower against the US Dollar, with the Dollar strengthening against most major currencies. Against the Euro, Sterling rose by 0.49%.

Commodities

Gold

Gold continued its recent trend, with the spot price gaining 2.56% to reach $1,864.90 per ounce. A strengthening US Dollar did not appear to phase international investors, with concerns around inflation appearing to be the main driver for the precious metal last week.

Oil

Data showing that US inventories declined by more than expected prompted a rise in Crude prices on Monday and Tuesday. During the second half of the week prices cooled, with Brent Crude finishing the week 0.69% lower at $82.17 per barrel.