16th – 23rd July 2021

Market Update

Equities in Europe rose on optimism about the upcoming corporate earnings season and the European Central Bank’s (ECB) reaffirmation of its pacifistic monetary policies. These tailwinds helped reverse early weakness, resulting from fears that the spread of the delta variant of the coronavirus could prolong a global economic recovery. In local currency terms, the pan-European STOXX Europe 600 Index ended 1.49% higher. The main European stock indexes also gained, with France’s CAC 40 Index up 1.68%, Italy’s FTSE MIB Index advancing 1.34%, and Germany’s Xetra DAX Index adding 0.83%. The UK’s FTSE 100 Index ticked up 0.28%.

Core eurozone government bond yields fell. Worries about the spread of the coronavirus and the ECB, which reiterated its view that inflationary pressures should prove transitory, contributed to demand for high-quality government bonds. Peripheral eurozone bond yields largely tracked core markets. UK gilt yields fluctuated, as surging coronavirus cases spurred flows into bonds midway through the week.

The ECB kept its key policy measures unchanged, but revised its forward guidance, indicating it would keep interest rates “at their present or lower levels until it sees inflation reaching 2% well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at 2% over the medium term.” The ECB indicated this process could involve a short period in which inflation goes moderately above this target.

US stocks ended the week higher, rebounding from a sell-off on Monday. The advance was somewhat narrow, however, with much of the gains concentrated in technology and internet-related giants– the so-called FANG+ stocks.

U.S. Treasury yields followed a similar pattern to the equity benchmarks. Growing fears surrounding the delta variant spurred a steep decline in the benchmark 10-year Treasury note yield at the start of the week, which was exacerbated by technical trading factors that pushed long-term yields on Tuesday morning to their lowest levels since early February. (Bond prices and yields move in opposite directions.) Yields quickly retraced earlier moves, as worries over potential lockdowns in the U.S. eased, and demand for new issuance of investment-grade mortgage-backed securities and corporate bonds appeared to pull some investors away from Treasuries.

Japan’s stock markets closed in negative territory on Wednesday, ahead of a long weekend that marked the start of the Tokyo Olympics. The Nikkei 225 Index was down 1.63%, and the broader TOPIX Index fell 1.44%. Concerns that the Olympic games would worsen the country’s COVID-19 outbreak weighed on markets. News that support for Prime Minister Yoshihide Suga’s cabinet slid to its lowest level since he took office in September last year also dampened sentiment. The yield on the 10-year Japanese government bond fell to 0.016%, while the yen depreciated slightly to 110.45 against the U.S. dollar.

Chinese stocks recorded a mixed week. The Shanghai Composite Index rose 0.3% and outpaced the large-cap CSI 300 Index, which declined 0.1%, according to Reuters. Bond yields moved lower, as the yield on the 10-year sovereign bond shed 4 basis points to end the week at 2.93%. In currency markets, the Renminbi edged up 0.2% to close at 6.47 against the U.S. dollar.

Oil prices gained ground, rebounding the slide after OPEC+ agreed to ease its production cap over the next year or more. Brent crude oil is trading at USD 72.07 a barrel, easing in the afternoon and after-hours Friday. It was up 0.2% for the session and 0.4% for the week. Brent crude settled at $74.09 a barrel to be up around 1.2% for the week.

Gold remained over the $US1,800 mark, but is struggling to build positive momentum, given every opportunity by the rise of the new Delta Covid variant.

Lawsons Equity – Financial Planning 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.