Market Commentary 30th November 2021 from Charlie Hancock

Posted by Telford Mann

Market Commentary 30^th November 2021

Equity Indices

The FTSE 100 index declined by 2.49% across the week, whilst the mid-cap FTSE 250 moved 4.06% lower. Concerns around a new coronavirus variant prompted a sharp sell off in global equity markets on Friday.

Headlines regarding the ‘Omicron’ coronavirus variant first identified in South Africa resulted in investor sentiment deteriorating towards the end of the week. Investors appeared to be concerned by reports suggesting that current vaccines may not be effective against the new variant. A number of countries including the UK introduced travel restrictions for South Africa and neighbouring countries.

A survey on retail businesses carried out by the Confederation of British Industry (CBI) showed that selling prices rose at their fastest pace since 1990 in November, with 77% of firms surveyed reporting higher prices in comparison to the same period last year.

Europe

European equity indices had already declined prior to the sell-off in risk assets on Friday, with investors concerned about the coronavirus related restrictions being introduced by governments across the continent. With European equities also suffering sharp declines on Friday in line with risk assets elsewhere around the globe, indices in the region underperformed across the week. Germany’s DAX index declined by 5.59% and the broad FTSE All World Index – Europe ex UK moved 4.90% lower.

Confidence amongst Eurozone businesses declined to a 10-month low in November, with worries regarding coronavirus restrictions adding to concerns on supply chain issues. France bucked the trend, with business confidence seeing an improvement, particularly in the industrial and service sectors.

Minutes released from the most recent European Central Bank (ECB) policy meeting showed that some ECB officials acknowledged supply chain pressures were lasting longer than anticipated. Policymakers appeared keen to push back against suggestions that the Eurozone faces a period of stagflation.

US equities were broadly flat during the first half of the week before markets closed for the Thanksgiving holiday on Thursday. Upon re-opening for Friday’s session, US equities sold off sharply, leaving the S&P 500 index down by 2.20% across the week. The Dow Jones Industrial Average suffered a decline of 1.97%, whilst the technology heavy NASDAQ 100 moved 3.31% lower.

Speculation around the Federal Reserve speeding up the tapering of their asset purchase programme appeared to add to investor concerns on Friday. Minutes released from the Fed’s November meeting showed that a number of policymakers were in favour of winding down the bank’s asset purchases faster than previously anticipated.

Asia

Equity indices in Asia were mixed last week, with the broad FTSE All World Index – Asia Pacific declining by 2.85%. Japan’s Nikkei 225 fell by 3.34%, whilst China’s Shanghai Composite Index was broadly flat (+0.10%).

Trade tensions between China and the US appeared to flare up last week, with the US government blacklisting a number of Chinese companies based on links to China’s military. Technology regulators in Beijing reportedly asked the management of Chinese taxi-app Didi to de-list from the New York Stock Exchange, citing data security concerns.

Economic data in Japan was encouraging last week, with a composite Purchasing Managers Index (PMI) reaching the highest level recorded since early 2018. A PMI for the services sector rose to the highest level recorded in just over 2 years, with the recent easing of coronavirus related restrictions benefitting businesses operating in the sector.

The 10-Year Gilt yield declined across the week, moving from 0.88% to 0.82%.

During the first half of the week, the 10-Year yield rallied, with hawkish comments from Bank of England officials leading to rising expectations for interest rate hikes. The upwards move was reversed on Friday, with investors rotating into government debt as risk assets sold off.

Europe

The 10-Year German Bund yield rose during the first half of the week, but declined again on Friday to finish the week flat at -0.34%.

Yields for government bonds issued by periphery nations, such as Italy, moved higher across the week, as investors rotated away from riskier assets to seek holdings with perceived ‘safe haven’ status, such as German Bunds.

The 10-Year US Treasury yield declined from 1.55% to 1.48% across the week, although yields did rise during the first half of the week based on hawkish comments from the Federal Reserve’s most recent policy meeting minutes.

President Biden confirmed he would re-nominate Jerome Powell for the position of Fed chair, with markets appearing to rule out the possibility of a more dovish candidate as a result.

Currency

GBP / USD – Current 1.3337 Previous 1.3451

GBP / EUR – Current 1.1782 Previous 1.1915

The Pound weakened against both the US Dollar and the Euro last week, declining by 0.85% and 1.12% respectively.

Commodities

Gold

The Gold spot price declined by 2.34% across the week to reach $1,802.59 per ounce.

Gold briefly re-asserted it’s perceived ‘safe haven’ status on Friday, with the precious metal being one of the few asset classes to rise during the day’s trading session.

Oil

Oil prices moved sharply lower across the week, with the Brent Crude spot price declining by 7.82% to reach $72.72 per barrel.

Oil moved higher during the first half of the week, with traders anticipating that OPEC will not agree to demands for increased output, however, concerns around the impact of the Omicron coronavirus variant sent crude prices sharply lower on Friday.