Market Commentary 25th May 2021 from Charlie Hancock

Falling commodity prices prompted a mid-week sell off for mining companies and oil producers. Anglo American and Glencore declined by 3.78% and 4.39% respectively. Royal Dutch Shell regained some ground on Thursday and Friday to finish the week 1.67% lower, with rival BP seeing a 0.46% decline.

Economic data for the UK was broadly positive last week, with easing lockdown restrictions prompting an increase of 9.2% for retail sales during April. A closely watched survey indicated consumer sentiment rose to its highest level since the pandemic commenced, whilst a composite purchasing managers’ index (PMI covering both the manufacturing and services sectors recorded its highest reading since records began in 1998.

A composite PMI survey for the Eurozone indicated that business activity rose at its fastest pace for three years, with the services sector seeing a notable improvement during May amidst the easing of lockdown restrictions.

German producer prices recorded a 5.2% year on year increase in April, with supply constraints impacting factory prices. A senior European Central Bank (ECB) member, Isabel Schnabel, re-iterated during a television interview that a surge in Eurozone inflation is likely to subside during 2022.

Particularly strong PMI data for the US pointed to growing inflationary pressures, with the reading for the services sector reaching an all time high. The release of minutes from the Federal Reserve’s April policy meeting prompted speculation around monetary tightening, with some members of the committee suggesting the central bank should start thinking about tapering their asset purchase scheme.

Whilst official data showed Japan’s economy contracted by more than expected during the first quarter of the year, investors appeared encouraged by strong export growth during April. A decline of 0.4% in headline prices and 0.1% in core prices indicated that deflationary pressures in Japan remain dominant.

Some of China’s largest technology and e-commerce companies experienced strong performance last week, with JD.com gaining 6.75% and Pinduoduo rising by 9.26%. Sentiment across the broader market appeared to be impacted by a slowdown in retail sales and concerns that rising coronavirus cases in some regions may impact consumption in the coming months.

At the start of the week, speculation around the Bank of England winding down their Quantitative Easing (QE) programme prompted yields to rise. As the week progressed, it appeared that concerns around the Indian variant of coronavirus and the possibility of a delay to the full easing of lockdown restrictions prompted investors to rotate back into Gilts, sending yields lower.

Bund yields rose during the early part of the week, with investors pricing in a potential slowdown in bond purchases by the ECB, however, comments from ECB officials stating that rising inflation will be a short-term factor appeared to send yields lower again.

Treasuries were relatively stable across the week, although yields did see a brief spike after investors digested minutes from the Fed’s April policy meeting, which contained some hawkish remarks from some committee members.

GBP / EUR – Current 1.1617 Previous 1.1608

The Pound moved 0.38% higher against the US Dollar and saw a slight increase of 0.08% against the Euro. Concerns around a new coronavirus strain spreading in some parts of the UK were outweighed by positive economic data, with currency traders bullish on Sterling as a result.