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Month: February 2021

Weekly Market Update 19/02/21

Shares in Europe ended the week modestly higher, supported by companies delivering reassuring quarterly earnings. Those gains were tempered, however, by worries that rising inflation and higher bond yields might prompt central banks to tighten monetary policy. In local currency terms, the STOXX Europe 600 Index advanced 0.21%. Equities in Germany and Italy fell, while France’s CAC 40 Index and the UK’s FTSE 100 Index gained ground.

Core euro-zone bond yields rose. The yield on 10-year German bonds hit -0.32% on Friday, the highest level since June 2020, as rising US inflation expectations weighed on core asset demand. Strong Purchasing Managers’ Index (PMI) numbers also put upward pressure on yields. Yields on peripheral euro-zone bonds largely tracked core markets. Ten-year gilt yields reached 0.64% on Friday, up from 0.57% at the start of the week.

The major US indexes ended the holiday-shortened trading week mostly lower, with the large-cap benchmarks and technology-heavy Nasdaq Composite index hitting record intraday highs before falling back. A boost in longer-term interest rates weighed on fast-growing technology stocks by raising the discount rate on future profits. Conversely, the increase favoured bank shares by boosting lending margins and helping value shares– heavily weighted in financial– outperform growth stocks.

Trading began Tuesday on a solid note, attributed to a mixture of hopes for further fiscal stimulus, continued soft monetary policy, a better-than-expected fourth-quarter earnings season, and progression in fighting the coronavirus. Wall Street also seemed stimulated by a Bloomberg report that vaccine supply is anticipated to double by April, partly thanks to the approval of additional candidates.

US stocks fell on Thursday morning after Walmart reported weaker-than-expected earnings. The company also forecast slower earnings growth in the coming year, in part due to its commitment to raise the average wage of its employees to $15 an hour. The news followed Wednesday’s Labor Department report that producer prices rose 1.3% in January, the largest increase since December 2009. Retail sales also rose by 5.3% in the month – well above consensus expectations of a 1.1% gain, which many attributed to 600 dollars in direct payments to lower- and middle-income Americans approved as part of the December stimulus package. Weekly jobless claims, reported Thursday, jumped to 861,000, the highest level since mid-January. Data on the housing market also surprised on the downside, with house prices falling sharply from a nearly 14-year high. Inflation worries and retail sales data helped push the yield on the 10-year U.S. Treasury note to its highest level in nearly a year.

Japan’s stock benchmarks produced mixed results for the week. The Nikkei 225 Stock Average advanced 1.7% (497.85 points) and closed at 30,017.92. This was the first time the widely watched benchmark had topped the 30,000 milestone in more than 30 years– although it remained well below the all-time high of 38,597 it reached in 1989. For the year-to-date period, the Nikkei index is ahead 9.38%. The broader equity market benchmarks, the large-cap TOPIX Index and the TOPIX Small Index, finished the week with modest losses. In other market news, the yen was slightly weaker and traded above JPY 105 versus the U.S. dollar on Friday. Meanwhile, the yield of the 10-year Japanese government bond finished the week at 0.11%, the highest level since November 2018.

Chinese shares ended on a mixed note on a holiday-shortened week. The large-cap CSI 300 Index slipped 0.5%, while the benchmark Shanghai Composite Index rose 1.1%. China’s financial markets reopened Thursday, February 18, after a weeklong Lunar New Year holiday. In fixed income markets, the yield on China’s 10-year government bond closed at 3.31%, five basis points above its pre-holiday level. The People’s Bank of China (PBOC) drained RMB 260 billion from the financial system, which dampened buying momentum. Now that China’s economy is on firm footing, analysts expect the PBOC will gradually dial back pandemic stimulus measures. In currency trading, the renminbi closed at 6.487 against the U.S. dollar, slightly weaker from its pre-holiday level.

Commodities traded lower for a second week with the US and China attempting to get a trade deal across the finish line. Gold found support at a key level while a week-long oil rally ran out of steam with OPEC+ under pressure to cut production further. West Texas Intermediate fell $1.28 to settle at $59.24 a barrel, falling less than 1% over the week. Brent for the April settlement slipped $1.02 to end the session at $62.91 a barrel, posting its largest daily drop since 15th January.

Weekly Market Update 5/2/21

US stocks posted their best weekly gain since November, with major indexes closing at record highs. Economic expectations and progress in vaccine distribution continue to underpin the narrative of the bullish market. Crude oil traded at its highest level in more than a year, rising nearly 10% for the week. Energy stocks outperformed as domestic oil prices hit their highest level in over a year on a surprising drawdown in U.S. reserves. Healthcare stocks lagged.

Investors kept a close eye on the Biden administration’s USD 1.9 trillion stimulus proposal during the week. On Tuesday, President Joe Biden met with Republican Senate leaders to discuss a compromise, with Republicans proposing instead a relief bill totalling USD 618 billion. It became increasingly clear, however, that Senate Democrats were prepared to move ahead alone using the so-called “budget reconciliation” process, which would require a simple majority in the chamber (including the tie-breaking vote from Vice President Kamala Harris).

Shares in Europe rose with global markets on hopes of a quicker economic recovery, spurred in part by hopes that the pace of coronavirus vaccinations would improve and by the prospect of more U.S. fiscal stimulus. The pan-European STOXX Europe 600 Index ended the week 3.46% higher.

Germany’s Xetra DAX Index and France’s CAC 40 lagged but posted solid gains Italy’s FTSE MIB Index, which rallied 7.00% after Mario Draghi, the former president of the European Central Bank, was given a mandate to form a new government. The FTSE 100 Index advanced 1.28%, as some disappointing earnings reports and a strong UK pound curbed its gains. The currency strengthened after traders reduced bets on a possible interest rate cut and data highlighted the UK’s rapid rollout of its coronavirus vaccination program.

The eurozone’s economy contracted less than expected in the fourth quarter, according to Eurostat’s initial estimate, which suggested that GDP fell 0.7% sequentially and 5.1% year over year. France’s and Italy’s economies shrank the most, while GDP expanded 0.1% in Germany and 0.4% in Spain. Economists expect a steeper GDP contraction in the first quarter due to the continuing lockdowns.

The Bank of England said it expected the UK economy to recover quickly over the year and return to its pre-pandemic size by the first quarter of 2022. The central bank lowered its forecast for economic growth in 2021 to 5% from the 7.25% it predicted in November but raised its estimate of 2022 GDP growth to 7.25% from 6.25%.

Japan’s stock markets surged for the week. The Nikkei 225 Stock Average advanced 4.0% (1,116 points) and closed at 28,779.19. For the year-to-date period, the widely watched yardstick is ahead 4.9%. The broader equity market benchmarks, the large-cap TOPIX Index and the TOPIX Small Index, logged similar strong weekly gains. The yen weakened and closed above JPY 105 versus the U.S. dollar.

Chinese stocks rose for the week. The large-cap CSI 300 Index gained 2.5% and outperformed the Shanghai Composite Index’s 0.4% rise. Sentiment improved following reports that Chinese e-commerce leader Alibaba Group, which has been the target of unfavourable regulatory actions, reached an agreement with regulators over the restructuring of its Fintech affiliate Ant Group, whose record USD 34.4 billion initial public offering (IPO) was cancelled in November. In Hong Kong, a record oversubscription by retail investors for the USD 5.4 billion initial public offering of Kuaishou Technology revealed huge investor appetite for Chinese tech companies. Shares of the video app company surged 161% in its Hong Kong public trading debut on Friday, making it the largest internet IPO since Uber went public in 2019, according to Bloomberg.

US Treasuries rose over the week, with the 10-year yielding 1.20%, German bunds are yielding -0.42% and UK gilts 0.52%. Futures for gold on Wednesday finished solidly higher after a report on U.S. inflation and as investors responded to a House vote on impeaching President Donald Trump, for a second time, days before he is set to relinquish power to President-elect Joe Biden on Jan. 20. February gold prices traded $10.70, or 0.6%, higher to settle at $1,854.90 an ounce, after settling 0.4% lower on Tuesday.

Economic data being released include the small-business optimism report on Tuesday, inflation on Wednesday, and consumer confidence on Friday.

Weekly Market Update 29/01/2021

Equities suffered their biggest weekly loss in three months last week as volatile trading continued in some areas of the market. President Joe Biden has experienced a resistance against his $1.9 trillion fiscal stimulus package, leading to concerns it will have to be diluted to get passed, whilst Europe publicly strains with the rollout of vaccines.

U.S. stocks fell % over the week, with U.S. technology stocks falling 1.5 %. European stocks lost 2.2%, while UK stocks fell 3.2%, although much of the pain was in high-yield stocks, which suffered from the continued strength of sterling as the currency rose to $1.37 and $1.12 against the dollar and euro, respectively. Japanese stocks fell 2.6% and Australian stocks lost 2.8%.

Emerging markets fell 3.0%, with domestic Chinese stocks down 3.4% and Hong Kong stocks down 4.0% as the People’s Bank of China withdrew $23.2 billion in liquidity from the market to try to protect against asset bubbles from forming in the markets.

Haven assets like US Treasuries rose this week, with the yield on 10-year German government bonds, which moved inversely, temporarily falling below 1% and now trading at 1.07%, with 10-year German Bunds trading at -0.51% and UK Gilts at 0.32%.

Market volatility has increased despite the strong start to the company’s earnings season. Of the 34% of companies included in the main US equity index, 82% have exceeded earnings expectations, with an average earnings per share outperformance of 19%. Not as many companies have published results in Europe, of those that have, earnings have followed a comparable pattern, with 62% exceeding expectations with an average earnings per share outperformance of 20%.

The US stock market suffered its worst sell-off since October 2020 on Wednesday, due to concerns President Biden’s fiscal package needs to be diluted to enforce it, and disappointing news about the introduction of vaccines in many countries, particularly Europe. This has led to a high-profile disagreement between pharmaceutical company AstraZeneca and the European Commission over the anticipated delivery of Covid19 vaccines in the first quarter of 2021 relative to the volume ordered, with a major shortage probable.

The introduction of the vaccine in Europe became even more complicated when the German Vaccination Committee decided AstraZeneca’s vaccine should only be provided to people under 65, while they found inadequate trial data for more mature age groups.

Market volatility is worsened by well-organized retail investors who use online message boards like Reddit to target hedge funds that are shorting individual stocks. By purchasing heavily shortened stocks and driving up stock prices, these retail investors forced many hedge funds to close their short positions as their losses mounted. Retail investors will gain if the share price continues to rise, as hedge funds attempt to cover their short positions by buying shares. One high-profile hedge fund, Melvin Capital, lost $3.7 billion in the first three weeks of January as a result of such a targeted ploy by retail investors.

The information contained in this article is believed to be correct but cannot be guaranteed. Past performance is not a reliable indicator of future results. The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor may not get back the original amount invested. Opinions constitute our judgment as at the date shown and are subject to change without notice. This document is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation.

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