Equities in Europe were little changed for the week. A positive outlook stimulated by strong corporate earnings was offset by worries about the spread of the delta variant of the coronavirus and volatility spurred by Chinese regulators cracking down on domestic technology and education companies. In local currency terms, the pan-European STOXX Europe 600 Index ended flat. Major indexes were mixed. Germany’s Xetra DAX Index fell 0.80%, France’s CAC 40 Index gained 0.67%, and Italy’s FTSE MIB Index rose 0.95%. The UK’s FTSE 100 Index ended was roughly flat.
Eurozone bond yields fell on concerns about the spread of the coronavirus, and doubts about reflation expectations and wider economic recovery. Peripheral market yields generally followed core markets, falling after the European Central Bank (ECB) suggested inflation could temporarily overshoot its 2% target. UK gilt yields also tracked yields in other core markets.
The major US indexes were mixed for the week. The large-cap benchmarks and the technology-focused Nasdaq Composite index managed record highs before retreating Friday to end the week with modest losses. The S&P MidCap 400 Index and the small-cap Russell 2000 Index broke a string of underperformance and recorded gains. Recently underperforming utilities shares reversed course and were among the best performers in the S&P 500 Index, along with materials and real estate stocks. Reflecting the downward growth and inflation surprises, the yield on the benchmark 10-year U.S. Treasury note ended lower for the week. (Bond prices and yields move in opposite directions.).
The eurozone economy bounced back from recession in the second quarter, growing by a faster-than-expected 2% relative to the first three months of 2021. The year-over-year growth rate of 13.7% also topped prominent estimates. Output expanded in Germany, France, Italy, and Spain, although the uptick in Germany came below forecast due to supply bottlenecks that hindered its manufacturing sector. Euro area inflation accelerated to 2.2% in July from 1.9% in June, lifted by higher energy prices. Excluding food and fuel prices, the inflation rate held steady at 0.9%.
Japan’s major stock benchmarks faced headwinds, as COVID-19 cases reached a record level and the government extended a state of emergency to combat the spread of the virus. The Nikkei 225 Index was down 0.96%, while the broader TOPIX Index lost 0.17%. The equity markets reopened Monday after a four-day weekend to mark the start of the Tokyo Olympics. The yield on the 10-year Japanese government bond ticked up to 0.020%, while the Yen finished the week and strengthened at 109.6 against the U.S. dollar.
Chinese stocks dropped after a regulatory overhaul of the for-profit education sector unveiled July 24 proved much tougher than investors expected, and fears of heightened government oversight spilled into Chinese technology, health care, and property stocks. The large-cap CSI 300 Index sank 5.5% in its worst weekly drop since February, according to Bloomberg. For July, the benchmark shed 7.9%, its biggest monthly drop since October 2018. In Hong Kong, the Hang Seng Index declined 1.4% for the week after the benchmark index shed more than 8.0% on Monday and Tuesday on record-high volumes.
China’s stock market sell-off had a relatively mild impact on the domestic bond and currency markets. The yield on the 10-year Chinese government bond shed eight basis points to close at 2.85%. The Renminbi currency edged up 0.3% against the U.S. dollar to 6.46, a gain analysts blamed more to dollar weakness than to the broader stock sell-off.
Oil prices jumped sharply for a second day in a row on Friday, hitting their highest levels in more than a year, after the stronger-than-expected US jobs report and decision by OPEC and its allies not to increase supply in April. The surge took weekly gains to between 5% and 7% for Brent and West Texas Intermediate (WTI) crude, as prices reached levels last seen in January 2020. Gold dipped again, as did silver, iron ore faded, but copper bounced on Friday. Gold finished the week under $1,700 an ounce and at a 9-month low.
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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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