Market Commentary 14th December 2021 from Charlie Hancock

Posted by Telford Mann

Market Commentary 14^th December 2021

Equity Indices

The FTSE 100 index rose by 2.38% last week, whilst the mid-cap FTSE 250 gained 1.24%. Investor sentiment around the globe was generally positive, with concerns around the Omicron variant fading.

The large cap FTSE 100 was boosted by strong gains in heavyweight mining stocks, with Glencore rising by 4.55%, Rio Tinto gaining 3.83% and Anglo American rising by 7.32%. Several other heavily weighted stocks rallied, with GlaxoSmithKline gaining 5.04% and British American Tobacco rising by 6.79%.

Data released last week indicated that the UK’s economic recovery is slowing, with Gross Domestic Product (GDP) expanding at 0.1% in October, down from the 0.6% growth recorded for September. With the UK government also announcing ‘Plan B’ measures in response to rising coronavirus cases, some economists fear that growth may remain sluggish in the coming months.

Europe

European equity indices moved higher amidst the improving investor sentiment, with the broad FTSE All World Index – Europe ex UK rising by 3.09%. Germany’s DAX index gained 2.99%, whilst France’s CAC 40 gained 3.34%.

Several European nations tightened their coronavirus related restrictions last week, with French authorities ordering nightclubs to close for 1 month and Poland making vaccination mandatory for public sector workers. Austria announced that nationwide lockdown restrictions would be removed at the weekend, but unvaccinated individuals would still be subject to restrictions.

Economic data released last week was mixed. German industrial production during October was stronger than expect, but new orders were weak. International trade data for Germany pointed to growing economic activity, with both exports and imports increasing by more than expected. Exports to the US rose by 11.4% year-on-year, whilst trade with the UK was a weak spot, with exports down 11.5%.

US equity indices bounced back strongly from the previous week’s decline, with the S&P 500 gaining 3.82%, the Dow Jones Industrial Average rising by 4.02% and the NASDAQ 100 climbing by 3.95%. Newsflow regarding the Omicron coronavirus variant appeared to provide some support for risk appetite amongst investors.

US health authorities suggested that the first Omicron cases detected in the US have been mild, with chief medical advisor Dr Fauci stating that Omicron is ‘almost certainly’ not more severe than the Delta variant. Dr Fauci cautioned that further data will be required to confirm these claims.

Economic data appeared to encourage investors, with the number of new unemployment claims being the lowest amount recorded for more than 50 years. The Consumer Price Index (CPI) rose by 6.8% year-on-year in November, with inflation running at the highest level since 1982, however, this was in line with market expectations and as a result, investors did not react negatively to the data.

Asia

Most equity indices in Asia rose during the week, with the broad FTSE All World Index – Asia Pacific gaining 1.39%. China’s Shanghai Composite gained 1.63%, whilst Japan’s Nikkei 225 rose by 1.46%.

The Chinese property sector continued to generate headlines in the financial press during the week, with Evergrande announcing they are working on a debt restructuring plan to satisfy international lenders. The Chinese central bank took steps to introduce greater liquidity last week by reducing their reserve ratio requirements for banks and cutting rates for one of their key lending facilities. The stimulus measures came as a leading government think tank said that economic growth will slow from 8.0% in 2021 to 5.3% in 2022.

Japan’s Prime Minister, Fumio Kishida, provided further details on the recently announced $500 billion stimulus plan. The package includes key measures to stimulate consumption, with new campaigns to promote travel and leisure activity. Kishida explained his policies will be aimed at fostering a new form of capitalism, adding that the government is implementing measures to distribute growth across the population.

The 10-Year Gilt yield was broadly unchanged across the week, falling by 1 basis point to 0.74%. Government bond yields around the globe generally moved higher, but speculation around the Bank of England (BoE) scrapping plans for a December rate rise appeared to keep some downward pressure on UK gilts.

Europe

Most Eurozone government bonds saw yields moved higher as investors rotated back into equities during the week. The 10-Year German Bund yield rose from -0.39% to -0.35%.

The 10-Year US Treasury yield climbed from 1.35% to 1.48% last week. The upward movement was gradual across the week as risk appetite improved, resulting in demand for Treasuries declining. There was no significant movement in yields during Friday’s session following the release of November’s Consumer Price Inflation (CPI) data.

Currency

GBP / USD – Current 1.3273 Previous 1.3236

GBP / EUR – Current 1.1727 Previous 1.1698

The Pound gained 0.28% against the US Dollar and 0.25% against the Euro, reversing some of the previous week’s declines. Sterling declined on Friday following the release of data for economic growth during October, with the stalling recovery casting doubts on a rate rise at the BoE’s December policy meeting.

Commodities

Gold

Gold was broadly unchanged across the week, with the spot price moving 0.03% lower to $1,782.84 per ounce. Gold experienced marginal gains during Friday’s session following the release of US CPI data, however, the weak performance during recent months suggests investors have not been increasing exposure to the precious metal as an inflation hedge.

Oil

Oil recovered some of the recent declines last week, with the Brent Crude spot price rising by 7.54% to $75.15 per barrel. With concerns around the Omicron variant easing during the week, expectations for lower crude oil demand began to fade.