Market Commentary 15th March 2021 from Charlie Hancock

Posted by melaniebond

Market Commentary 15^th March 2021

Equity Indices

UK equity indices rose across the week, with the FTSE 100 seeing a gain of 1.97% and the FTSE 250 moving 2.60% higher. Investors were encouraged by data showing that UK Gross Domestic Product (GDP) fell by much less than expected during January 2021.

Sentiment on the UK was also lifted by data showing UK business confidence reached its highest level for 12 months. According to the organisers of the survey, accountancy firm BDO, the success of the UK’s vaccination programme has resulted in a significant rise in confidence for the services sector.

Cyclical sectors continued to outperform last week, with Barclays PLC rising by 5.26% and mining company Anglo American seeing a gain of 3.57%.

Europe

European equity indices performed strongly last week, resulting in the broad FTSE All World Index – Europe ex UK rising by 4.17%. Germany’s DAX index gained 4.18%, reaching an all time high. The headline German index was lifted by strong performance in cyclical sectors which have a significant weighting in the index, such as banks and automobile manufacturers. Volkswagen’s share price rallied by 7.03% across the week.

Investors in Europe were also encouraged by the European Central Bank (ECB) announcing they would ramp up the speed of bond purchases under their quantitative easing programme. The central bank cited a slower recovery in Europe compared to other regions and vowed to keep borrowing costs across the Eurozone low until the economy has recovered from the pandemic.

US equity indices rose across the week, with the S&P 500 index gaining 2.64% and the technology heavy NASDAQ 100 moving 2.12% higher. The more cyclically exposed Dow Jones Industrial Average index rallied by 4.07% across the week, with the implementation of a $1.9 trillion fiscal stimulus package and better than expected employment data prompting expectations of a faster economic recovery.

The Organisation for Economic Co-operation and Development (OECD) published their latest economic outlook for 2021, with their forecast for US economic growth revised upwards from 3.2% to 6.5%. The OECD cited the likely impact of fiscal stimulus measures which are far greater than those implemented in other developed nations.

US headline inflation data was broadly in line with expectations, however, the Consumer Prices Index (CPI) data was weaker than expected. This helped to calm fears of the Federal Reserve being forced to rise interest rates sooner than anticipated in order to reduce inflationary pressures.

Asia

The broad FTSE All World Index – Asia Pacific gained 1.22% across the week. Japan’s Nikkei 225 benefitted from investor optimism around cyclical sectors, with the index gaining 2.96% across the week. China’s Shanghai Composite Index declined by 1.40%, with weakness in large cap internet and technology names holding back Chinese indices.

Evidence of strength in the Chinese consumer sector came from British luxury goods company, Burberry, who stated that sales in China rose strongly during the 4^th quarter of 2020. Burberry reported a decline of 37% in sales across Europe and the Middle East during the same period.

Data on Chinese exports during January and February was much stronger than anticipated at 61% higher than the same period last year. Whilst the data was somewhat distorted by the impact of the pandemic in China at the start of 2020, economists were anticipating export growth of around 40%.

Bond Yields

The 10-Year Gilt yield rose last week, moving from 0.75% to 0.82%.

Continued optimism around the outlook for an economic recovery, together with a strengthening pound, provided upward pressure on gilt yields.

Europe

The 10-Year German Bund yield was broadly flat across the week, moving from -0.30% to -0.31%.

Whilst the ECB voted to keep the amount of purchases planned under their quantitative easing programme unchanged, the central bank did vow to ramp up the speed of purchases. This put downward pressure on Eurozone government bond yields.

The 10-Year US Treasury yield climbed higher last week, moving from 1.57% to 1.63%.

Investors kept a close eye on an auction for $38 billion worth of 10-Year Treasuries. The auction drew adequate interest, suggesting that demand for treasuries remains healthy. This helped to calm the nerves of fixed income investors, with treasury yields falling in the aftermath of the auction.

Currency

GBP / USD – Current 1.3924 Previous 1.3841

GBP / EUR – Current 1.1647 Previous 1.1615

The Pound gained 0.60% against the US Dollar and 0.28% against the Euro. Currency traders appeared to be unphased by data showing that UK exports to the EU declined sharply during January.

Commodities

Gold

Gold remained relatively weak, with the spot price rising by 1.56% to $1,727.11 per ounce. Analysts have quoted recent strength in the US Dollar as one of the main deterrents for Gold investors at present.

Oil

Oil prices fell back slightly last week, but remained close to their recent highs. The Brent Crude spot price finished the week 0.20% lower at $69.22 per barrel, after initially spiking to $71 per barrel on Monday after Saudi Arabia reported a drone attack on one of their facilities.