3rd – 10th September 2021

Equities in Europe decreased surrounded by uncertainty about the economic outlook, the continuing coronavirus pandemic, and central bank policy. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 1.19% lower. Major stock indexes also fell. Germany’s Xetra DAX Index eased 1.09%, Italy’s FTSE MIB Index slipped 1.45%, and France’s CAC 40 Index lost 0.39%. The UK’s FTSE 100 Index declined 1.53%.

Core eurozone bond yields ended a little higher, paring previous gains, after European Central Bank (ECB) President Christine Lagarde stated the central bank’s decision to cut its emergency bond purchases was not tapering. Peripheral eurozone bond yields broadly followed yields in core markets. UK gilt yields climbed amid growing expectations that the Bank of England (BoE) might start raising short-term interest rates.

The ECB raised its forecast for 2021 economic growth to 5.0% from 4.6%, and its inflation projection to 2.2% from 1.9%. The central bank’s projections showed inflation peaking at 3.1% in the fourth quarter, and then slowing to 1.7% in 2022 and 1.5% in 2023.

UK Prime Minister Boris Johnson secured parliamentary approval for GBP 12 billion in tax increases to fund changes to social care and the National Health Service. Under the plan, some investors will face higher levies on dividends, while the national insurance contributions taken out of pay-checks will also increase.

The major US indexes pulled back over the shortened trading week– markets were closed on Monday in observance of Labor Day. The small real estate sector led the declines in the S&P 500 Index, as longer-term interest rates increased, while consumer staples and utilities stocks held up best. The small-cap Russell 2000 Index fared worst after two consecutive weeks of outperforming the large-cap benchmarks, and value stocks trailed growth shares.

The Friday morning’s producer price data appeared to reverse a downward trend in the yield on the benchmark 10-year U.S. Treasury note, leaving it modestly higher for the week. (Bond prices and yields move in opposite directions.).

Japanese equities extended their gains over the week, buoyed by political optimism and expectations of further fiscal stimulus under a new prime minister, following the decision of current Prime Minister Yoshihide Suga to step down. The Nikkei 225 Index returned 4.30%, while the broader TOPIX Index rose 3.78%. While the government again extended its coronavirus state of emergency measures, plans boosted sentiment to relax restrictions once most of the population has been vaccinated, with relaxation expected to commence around November. Against this backdrop, the yield on the 10-year Japanese government bond remained broadly unchanged from the end of the previous week at 0.04%, while the yen weakened to JPY 109.97 against the U.S. dollar (from 109.72 the prior week). 

Chinese stocks rose for the third straight week. The Shanghai Composite Index gained 3.4%, and the CSI 300 Index of large-cap stocks rallied 3.5%, according to Reuters. Strong trade data and an unexpected yet reportedly candid phone conversation between the U.S. and Chinese presidents lifted investor sentiment. The yield on China’s 10-year government bond increased and ended the week at 2.89%, while the Renminbi currency edged up 0.2% versus the U.S. dollar to 6.4423 per dollar, its strongest level since mid-June, according to Bloomberg.

Gold traded through a high of around $1,806 and a low of $1,788, and settled at $1,792.60. That was down around half a per cent and 2.2% for the week. Silver fell 3.6% over the week to end at $23.85.

China’s latest attempt to influence oil markets failed in a big way on Friday. After a drop caused by the Chinese announcement of a drawdown on its strategic reserves to supply the market, the price rose 2.3% on Friday to settle at $69.72. That left WTI up 0.6% for the week, and Friday’s rise turned a small loss for the week into a gain, with that help from China. Brent crude settled higher at $72.92.