Shares in Europe ended little changed, recovering from a sharp pullback stemming from worries that a surge in coronavirus cases might hinder global economic growth. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 0.19% higher. Major indexes were mixed. Germany’s Xetra DAX Index ticked up 0.24%, France’s CAC 40 Index declined 0.36%, and Italy’s FTSE MIB Index dropped 0.91%. The UK’s FTSE 100 Index ended the week flat.
Core eurozone bond yields tracked U.S. Treasury yields lower as global bonds rallied. The swift spread of the delta variant of the coronavirus and weak U.S. services activity data stimulated concerns about the economic outlook and drove demand for high-quality government bonds, pushing yields lower. Peripheral eurozone government bonds and UK gilts largely tracked core markets this week.
The major US benchmarks closed mixed, with large-caps and growth stocks outperforming for the second consecutive week. Within the S&P 500 Index, the interest rate-sensitive real estate sector performed best, as longer-term Treasury yields decreased sharply. Energy stocks fared the worst on worries that disagreements among major oil producers would result in some violating output restrictions. Weakness among media firms also weighed on the communication services sector. Markets were closed Monday in observance of Independence Day.
The major driver of sentiment during the week appeared to be the steep decline in U.S. Treasury yields, with the yield on the benchmark 10-year Treasury note hitting a nearly five-month low on Thursday. The 10-year Treasury note yield sank to 1.25% in intraday trading on Thursday, before partially retracing earlier moves.
The European Central Bank (ECB) adopted a 2% inflation target over the medium term– discarding the previous objective of “below, but close to, 2%”– after reviewing its strategy. ECB President Christine Lagarde said the new target meant the central bank “considers positive and negative deviations of inflation from the target equally undesirable.” She said the ECB would use “persistent or especially forceful monetary policy action” when interest rates are close to their lower limit and inflation remains below its target. The shift “may also imply a transitory period in which inflation is moderately above the target.” Lagarde said the new strategy was “quite squarely” not the same as the U.S. Federal Reserve’s average inflation policy.
Japan’s stock markets noted sharp losses for the week, with the Nikkei 225 Index falling 2.93% and the broader TOPIX Index down 2.25%. Concerns dampened sentiment that the spread of the delta variant of the coronavirus would stall a global economic recovery. The yield on the 10-year Japanese government bond pulled back to 0.03% amid expectations that major central banks will not tighten monetary policy any time soon, while the pandemic continues to pose risks to growth. The yen strengthened to JPY 110.01 against the U.S. dollar on safe-haven demand.
Chinese stocks were mixed for the week, with the benchmark Shanghai Composite Index edging slightly higher and the large-cap CSI 300 Index recording a modest loss. Selling was pronounced in technology stocks amid heightened regulatory risk on reports that Beijing will tighten oversight of U.S.-listed Chinese companies, many of which are in the tech sector, as well as the government’s continued crackdown on domestic tech companies. For the week, the yield on China’s 10-year sovereign bond fell eight basis points to 3.02%. The Renminbi currency shed 0.2% to close at 6.487 against the U.S. dollar.
In commodities, 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.
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 $1,800 an ounce. That left the metal up 1.8% for the week.
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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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