Market Commentary 13th July 2021 from Charlie Hancock

Sentiment was mixed last week, with a sell off occurring during Thursday’s session after investors became concerned about a slowing global economic recovery. Major UK indices recovered some ground on Friday as the worries abated.

Official data released on Thursday showed the UK economy is estimated to have grown at 0.8% during May, with momentum slowing from the 2.0% growth rate recorded for April. The UK economy is now estimated to be 3.1% smaller than its pre-pandemic peak in February 2020.

European equity indices were choppy, with investor sentiment changing throughout the week. Concerns around a slowdown in the economic recovery were fuelled by signs of a surge in coronavirus infections in some parts of Europe, notably Spain.

The European Central Bank (ECB) announced they would now target average inflation of 2% over the medium term, reducing expectations for any monetary tightening in the near future to combat rising inflation. The ECB’s previous strategy was to target steady inflation of just under 2% and the central bank acknowledged the new policy may result in a period where inflation is moderately above the target level.

Sentiment was muted during the early part of the week, with headlines regarding the delta Covid-19 variant adding to the cautious mood. Travel related stocks suffered declines, with American Airlines moving 2.75% lower across the week. Royal Caribbean Cruises suffered a 4.30% decline.

Economic data was slightly weaker than expected, which added to concerns around slowing economic growth. In particular, the number of new weekly jobless claims came in higher than anticipated, suggesting that improvement in the US labour market may be stalling.

The Japanese government announced Tokyo would re-enter a state of emergency to stem a rise in coronavirus infections. The measures are due to last until the final week of August, with no spectators allowed at the upcoming Olympic Games as a result. Prime Minister Yoshihide Suga suggested that restrictions may be lifted early if the situation improves, but investor sentiment remained fragile and the headline Nikkei 225 index declined throughout the week.

Chinese indices were relatively stable last week, despite renewed concerns around regulatory issues. The government announced greater scrutiny would be placed on technology companies with a focus on those seeking international stock market listings. Didi, a Chinese company which operates a taxi-hailing mobile app, saw their US listed shares decline by 22.45% across the week after Beijing authorities launched an investigation into Didi and effectively banned its use in China.

With investors in a cautious mood and headlines around a slowdown in the global economic recovery surfacing, demand for ‘safe haven’ assets such as government bonds increased.

The minutes indicated that most members of the Federal Open Market Committee do not feel the central bank’s asset purchase programme should be tapered yet, with substantial further progress required before the economic recovery meets their goals.

GBP / EUR – Current 1.1701 Previous 1.1659

Sterling gained 0.56% against the US Dollar and 0.36% against the Euro last week. Currency traders appeared unphased by rising UK coronavirus infections.