Equities in Europe fell on worries the rise in coronavirus cases could hinder economic recovery. Some market participants are also concerned that central banks may tighten monetary policy sooner than expected to subdue inflation. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 0.64% lower. Major European stock indexes also dropped. France’s CAC 40 Index slid 1.06%, Italy’s FTSE MIB Index slipped 1.03%, and Germany’s Xetra DAX Index weakened 0.94%. The UK’s FTSE 100 Index fell 1.60%.
Core eurozone government bond yields dropped, mostly tracking the move in U.S. Treasury yields, as U.S. Federal Reserve and European Central Bank (ECB) officials reaffirmed the view that inflationary pressures would prove transitory. Concerns about the rapidly spreading delta variant of the coronavirus also weighed on yields. Peripheral eurozone bond yields broadly tracked core markets. UK gilt yields ended roughly flat, as higher-than-expected inflation and hawkish commentary from two Bank of England policymakers offset some downward pressure on yields from the move in U.S. Treasuries.
The major US indexes ended lower, but the S&P 500 Index and Nasdaq Composite reached new intraday highs at midweek before falling back. The small-cap Russell 2000 Index underperformed for the third consecutive week, further giving up its leadership over the large-cap S&P 500 Index for the year-to-date period.
The yield on the benchmark 10-year U.S. Treasury note jumped briefly following the release of the retail sales data, but ended lower for the week. (Bond prices and yields move in opposite directions.) Despite the rally in Treasuries, the broad municipal bond market was little changed over most of the week.
Japan’s stock markets registered modest gains for the week, with the Nikkei 225 Index up 0.22% and the broader TOPIX Index gaining 1.04%. Tokyo was placed under its fourth coronavirus state of emergency, lasting until August 22 and covering the duration of the Olympic Games, as part of the government’s efforts to contain a resurgence in COVID-19 infections. The capital registered its highest daily count in new cases since January during the week. Against this backdrop, the yield on the 10-year Japanese government bond fell slightly to 0.02%, while the yen was broadly unchanged at JPY 110.04 against the U.S. dollar.
In a choppy week, the Shanghai Composite Index and large-cap CSI 300 Index rose by 0.4% and 0.5%, respectively. Markets showed relief after China’s second-quarter gross domestic product (GDP) report on Thursday was in line with expectations. China’s bond market recorded inflows of USD 10 billion in June. The yield on the 10-year government bond fell five basis points to 2.97%, marking the first time since August 2020 it fell below 3.0%. In currency markets, the Renminbi was little changed and closed at 6.471 versus the U.S. dollar.
OPEC+ ministers were due to meet overnight Sunday (Sydney time) to break the deadlock and try on a new output policy between Saudi Arabia and their smaller Gulf rivals, the United Arab Emirates (UAE). Ahead of that news emerging at the weekend, Brent crude settled down 12 cents at $73.59 a barrel on Friday, while in New York West Texas Intermediate (WTI), crude rose 16 cents to settle at the end of the week at $71.81 a barrel.
West Texas Intermediate fell around 4%, and Brent crude dipped 3% in what were the largest falls for five months, as nervousness about the lack of a deal on a new production cap rattled confidence.
Gold fell by $14 an ounce to $1,815 an ounce, and continued to fall in late trading to around $1,812. That still left gold up 0.2% for the week, but there’s a chance the price will slide again, with more attention focused on rising Covid Delta infections.
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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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