Market Commentary 22nd March 2021 from Charlie Hancock

The Bank of England voted to keep interest rates unchanged at 0.10% last week. The Bank delivered a positive outlook and pointed out that Gross Domestic Product (GDP) fell by less than expected during January. The bank’s chief economist, Andy Haldane, said he expects a rapid economic recovery to take place in the coming months.

With oil prices weakening last week, BP and Royal Dutch Shell gave up some of their recent gains and weighed on the FTSE 100 index. The oil giants saw their share prices decline by 5.18% and 6.19% respectively.

Signs of a third wave of coronavirus infections prompted German authorities to look at plans for extending lockdown restrictions, whilst France imposed a lockdown across 16 areas, including Paris.

Volkswagen shares surged by 23.31% last week, after an analyst stated that the group’s electric vehicle sales may surpass the number sold by Tesla as soon as next year. The group aim to sell 1 million hybrid and pure battery-electric vehicles during 2021. The positive sentiment fed through to other companies in the sector, with BMW’s share price climbing by 7.54% across the week.

During the early part of the week, investors reacted positively to data showing that inflation in the US remains subdued. Despite higher energy prices, core inflation declined slightly during February, with prices increasing at an annualised rate of 1.3%. Investors had become concerned during recent weeks that rising inflation would force the Federal Reserve to implement interest rate rises sooner than previously anticipated.

The Federal Reserve held their regular policy meeting and kept interest rates unchanged, with chairman Jerome Powell stating during the post meeting press conference that they anticipate no interest rate hikes until 2023. Powell stated that they believe inflationary pressures will build in the coming months, but will be short lived.

Japan’s Prime Minister, Yoshihide Suga, announced an end to the state of emergency in Tokyo and the surrounding regions, with coronavirus infections seemingly under control. The Bank of Japan published a review of their policy tools, with the bank no longer committing to purchases of Exchange Traded Funds (ETFs) at a set pace. The bank’s new policy will see them intervene only when they deem it necessary.

Concerns around US-China tensions resurfaced last week, with reports of soured relations during a meeting between officials in Alaska. Reports on Friday also suggested that the Beijing administration is banning military staff and employees of key state owned companies from driving Tesla vehicles. Chinese authorities are reportedly concerned about the cameras fitted to Tesla vehicles collecting footage for the US government.

Whilst the Bank of England voted to keep interest rates unchanged last week, their positive outlook for a strong economic recovery provided upward pressure on yields, with bond investors pricing in interest rate rises sooner than previously anticipated.

Investors looked through data showing a higher than expected number of unemployment claims, with bond traders anticipating the economy recovery will gather pace during the coming months.

GBP / EUR – Current 1.1647 Previous 1.1647

A positive outlook from the Bank of England and continued progress in the vaccination programme had little impact on Sterling last week. The Pound was flat against the Euro and 0.37% lower against the US Dollar, with the greenback showing strength against most major currencies last week.