Equities in Europe accelerated as optimism about a continuing economic expansion balanced worries about a gradual withdrawal of central bank support. Lingering concerns about Chinese property developer Evergrande suppressed gains. In local currency terms, the pan-European STOXX Europe 600 Index ended 0.31% higher. Major indexes also rose. Germany’s Xetra DAX Index added 0.27%, France’s CAC 40 Index rose 1.04%, and Italy’s FTSE MIB Index gained 1.01%. The UK’s FTSE 100 Index climbed 1.26%.
The Bank of England (BoE) maintained its key rate unchanged at 0.10%, although two policymakers voted for a premature end to the quantitative easing program. The accompanying statement also indicated that some developments, including upside risks to the inflation outlook, had reinforced the case for tightening. In a letter to the Chancellor of the Exchequer explaining why inflation was above the 2% target, Governor Andrew Bailey said the BoE now expects “inflation could remain above 4% into the second quarter of 2022.”
Growth in the Eurozone economic activity stalled significantly in September from July’s 15-year high, while input prices jumped to a 21-year high. The early headline number for IHS Markit’s composite Purchasing Managers’ Index (PMI) came in at 56.1– down from the final readings of 59.0 in August and 60.2 in July. (PMI readings greater than 50 indicate an expansion in economic activity levels.).
The major US benchmarks rose above an early sell-off to end the week flat to modestly higher. On Monday, the S&P 500 Index recorded its biggest daily drop since May 12, and temporarily dipped below its 100-day moving average, a closely watched technical level. Longer-term bond yields climbed sharply over the week, assisting financial shares by holding the promise of improving banks’ lending margins. Energy stocks also outperformed within the S&P 500, while utilities shares lagged.
The coming wind-down of the central bank’s monthly asset purchases and mildly aggressive revisions to its interest rate forecasts helped push the yield on the benchmark 10-year U.S. Treasury note significantly higher later in the week. (Bond prices and yields move in opposite directions.) On Friday, the 10-year yield hit an intraday peak of around 1.47%, its highest level since the start of July, on the eve of the rebound in coronavirus cases.
Japanese stocks posted losses in a volatile, holiday-shortened trading week. Japan’s stock markets were closed on Monday for Respect for the Aged Day, and on Thursday for Autumnal Equinox Day. The Nikkei 225 Stock Average closed at 30,248.81, modestly lower for the week, just off its 31-year high recorded earlier in the month. The yen traded near JPY 110 versus the U.S. dollar, while the yield of the 10-year Japanese government bond finished the week at 0.055%.
Mainland Chinese stocks finished a holiday-shortened week broadly flat from the prior Friday’s close, after being closed Monday and Tuesday for the Mid-Autumn Festival. The market’s subdued performance was significant after Hong Kong’s Hang Seng Index fell more than 3.0% on Monday amid the mounting debt crisis surrounding China’s Evergrande Group. In the bond market, the yield on the 10-year Chinese government bond rose two basis points to 2.92% amid concerns about the potential costs to Beijing of an Evergrande rescue. In currency trading, the Renminbi was flat against the U.S. dollar, trading at 6.463 per dollar late Friday afternoon in Shanghai.
A second day of the relief rally for oil, as the predicament in the OPEC+ group between Saudi Arabia and the UAE continued to be unresolved. Friday saw oil prices increase for a second day, as the market focused on falling inventories (in the US), and signs of strong Asian demand from both China and India added support.
Brent crude oil futures were up $1.43 or 1.93%, at $75.55. US West Texas Intermediate futures were up $1.62, or 2.2%, at $74.56. Prices on both sides of the Atlantic ended the week little changed, despite significant daily fluctuations. Brent fell 0.7% for the week, while WTI was steady. Gold bulls see some upside from the rising tide on infections and doubts about the health of major economies. 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.
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Lawsons Equity Limited is a company registered in Malta with company number C49564 and Licenced 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
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