10th – 17th September 2021

Market Update

Shares in Europe weakened, as concerns about the impact of the coronavirus’s delta variant on the global economy outweighed expectations of continuing central bank support. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 0.97% lower. Major indexes were mixed. Italy’s FTSE MIB Index ended modestly higher, but Germany’s Xetra DAX Index slipped 0.77%, and France’s CAC 40 Index lost 1.40%. The UK’s FTSE 100 Index slid 0.93%.

Core eurozone bond yields climbed in sympathy with U.S. Treasuries, with a Financial Times report saying the European Central Bank (ECB) anticipates to meet its 2% inflation target by 2025, and is on course to increase interest rates in about two years– significantly ahead of consensus expectations. Peripheral eurozone bonds tracked core yields. UK gilt yields advanced after data indicated inflation surged in August, stimulating concerns that this development could cue the Bank of England (BoE) to increase interest rates quicker than expected. The Office for National Statistics said inflation in the UK jumped to 3.2% in August, its highest level in more than nine years.

The small-cap Russell 2000 Index managed a small gain, but most of the major US equity indexes ended the week modestly lower, as investors weighed encouraging economic data against worries about supply chain challenges, elevated valuations, and concerns about how stocks would respond to an eventual tightening in monetary policy. Energy shares within the S&P 500 Index recorded solid gains on the back of rising oil prices, while strength in auto-related shares boosted consumer discretionary stocks.

On Sunday, Democratic Senator Joe Manchin said he would support an infrastructure spending package of around USD 1.5 trillion, far less than USD 3.5 trillion that the more progressive members of Congress have proposed. To help fund the new package, Democrats are seeking to raise the corporate tax rate to 26.5%, up from the current 21%, while also raising the top capital gains tax rate from 20% to 25%– smaller increases than previously sought.

Tuesday’s mild inflation data seemed to drive a rally in the bond market, helping push the yield on the benchmark 10-year U.S. Treasury note to its lowest intraday level since August 23, but the major equity benchmarks moved lower. (Bond prices and yields move in opposite directions.).

Japan’s stock markets increased over the week, with the Nikkei 225 Index up 0.39% and the broader TOPIX Index returning 0.41%. The government is aiming to ease the scope of coronavirus restrictions in November, once most of the population has been vaccinated. Against this backdrop, the yield on the 10-year Japanese government bond ticked up to 0.05%, while the Yen hovered around JPY 109.9 against the U.S. dollar, little changed from the prior week.

Chinese stocks dropped sharply for the week. Weak August economic data, a fresh coronavirus outbreak in Fujian province, the growing debt crisis at embattled property developer China Evergrande Group, and the threat of tighter gaming regulations in Macau dampened investor sentiment. The CSI 300 index of large-cap stocks fell 3.1%, and the Shanghai Composite Index retreated 2.4%. China’s stock markets are closed Monday and Tuesday for the Mid-Autumn Festival, and will reopen on Wednesday, September 22.

The yields on Chinese bonds were broadly flat for the week. In currency trading, the Renminbi (RMB) weakened by 0.2% against the U.S. dollar. The RMB has largely moved with the dollar in recent weeks, with the trade-weighted currency index close to a five-year high. Foreign investor inflows into Chinese bonds have slowed in recent months, but analysts anticipate demand will increase after Chinese government bonds are included in the FTSE World Government Bond Index starting in October.

In commodities, gold gained 0.6% to $1,810.60 an ounce, silver rose 0.4% to $26.25 an ounce, and copper surged 1.9% to $4.34 a pound. That’s the first time in three weeks that gold has climbed over and ended above $US1,800 an ounce, and left the metal up 1.8% for the week.

Lawsons Equity – Financial Planners Malta

Lawsons Equity Limited is a company registered in Malta with company number C49564 and licensed by the Malta Financial Services Authority as Enrolled Insurance Brokers under the Insurance Intermediaries Act 2006, and to provide Investment Services under the Investment Services Act, 1994. Lawsons Equity Ltd have passported their services across the EU. To see a full list of countries, click here.