Market Commentary 5th January 2022 from Charlie Hancock

Posted by Niamh Bailey
Market Commentary 5th January 2022
Equity Indices
Across the week, the UK’s FTSE 100 index rose by 0.17%. Trading volumes were significantly lower than normal due to the holiday period, with the London Stock Exchange closed on Monday and Tuesday. The more domestically focussed FTSE 250 gained 0.90%.

During the first half of the week, a rally for the FTSE 100 resulted in the index reaching the highest level seen since before the pandemic impacted the UK stock market in February 2020. The FTSE 100 fell back slightly during the 2nd half of the week.

Investor sentiment for UK leisure companies appeared to be positive, with the government announcing that no further covid restrictions would be implemented before the new year. Pub chains Wetherspoon and Marston’s rallied by 3.39% and 2.74% respectively. Investors were less confident on the outlook for international travel, with cruise operator Carnival declining by 5.39% and International Consolidated Airlines falling by 2.84%.

European equity indices rose across the week, with the broad FTSE All World Index – Europe ex UK gaining 1.57%. Germany’s DAX index climbed by 0.82%, whilst France’s CAC 40 gained 0.94%.

Investor concerns around the spread of the Omicron variant appeared to dissipate somewhat during the week, despite coronavirus infection rates continuing to rise. Several nations introduced harsher restrictions, including an order to work from home in France and Portugal.

Natural gas prices in Europe remained close to record highs, with gas flows from Russia to Germany reportedly stopping altogether. Some European politicians have accused Russia of withholding natural gas in response to political tensions around Ukraine.

US equities moved higher during the week, with the Dow Jones Industrial Average leading the major indices (+1.08%). The S&P 500 index gained 0.85%, whilst the technology heavy NASDAQ 100 lagged with a rise of 0.74%.

Economic data released during the week was generally encouraging. Data from Mastercard showed that retail spending in December rose at the fastest pace recorded since 2003, indicating that consumer demand remains strong. Manufacturing activity continued to expand at a strong pace, whilst the number of new weekly jobless claims declined by significantly more than expected.

Stocks in the travel sector were notably weak, with Norwegian Cruise Line Holdings Ltd declining by 6.32% after the US health protection agency recommended against travelling on cruise ships, regardless of vaccination status.

Asian equity markets experienced mixed performance, with the FTSE All World Index – Asia Pacific gaining 0.51%. The Shanghai Composite Index declined by 0.10%, whilst the Nikkei 225 was broadly flat (+0.03%).

Regulators in Beijing announced stricter requirements for Chinese companies seeking foreign investment and overseas stock market listings, with data security reportedly one of the main concerns for the Chinese government. Economic data was broadly positive, with manufacturing and services Purchasing Managers Indices (PMIs) rising by more than expected during December.

Japan’s Prime Minister, Fumio Kishida, announced that the government is considering bringing forward the Covid-19 booster vaccination schedule. Economic data was encouraging, with fading supply side issues helping industrial production to rise strongly in November.

The 10-Year Gilt yield rose from 0.92% to 0.97% across the week as government bond yields around the globe moved higher. Markets appeared to price in an increased likelihood of the Bank of England (BoE) implementing a further interest rate rise in February.
The 10-Year German Bund yield moved from -0.25% to -0.18% across the week. A rotation away from government bonds and into equities contributed to the rise in yields.
The 10-Year US Treasury yield saw a marginal increase from 1.49% to 1.51%, after rallying during the first half of the week before falling back.

Whilst trading volumes in treasuries and corporate bonds were relatively light, the encouraging US economic data may have driven some rotation away from Treasuries during the week.

GBP / USD – Current 1.3532 Previous 1.3386

GBP / EUR – Current 1.1893 Previous 1.1837

The Pound gained 1.09% against the US Dollar and 0.47% against the Euro. Currency traders appeared bullish on Sterling, with confirmation of no further imminent coronavirus related restrictions in England contributing to the improvement in sentiment.

The Gold spot price gained 1.05% to reach $1,829.20 per ounce. Other than a slightly weaker US Dollar, there appeared to be no obvious driver for the precious metal’s gain during the week.
Oil prices were relatively stable, with the Brent Crude spot price rising by 2.15% to $77.78 per barrel. Traders appeared confident the OPEC group of oil producers would vote to proceed with planned production increases at their January 4th meeting.