Market Update 5/4/21

Europe’s shares climbed to near record highs in a short trading week, confident about a rapid economic recovery. (Markets closed on Friday in recognition of the Good Friday holiday). Expectations for U.S. infrastructure spending helped minimise concerns of a longer than expected lockdown on the Continent. In local currency terms, the pan-European STOXX Europe 600 Index ended 2% higher. France’s CAC 40 Index and Italy’s FTSE MIB made similar gains, while Germany’s Xetra DAX Index rose about 3.0%. The UK’s FTSE 100 Index was little changed.

Core eurozone government bond yields ended higher overall. They rose early in the week with U.S Treasuries, which sold off on expectations of more U.S. fiscal stimulus and U.S. vaccination progress. However, surging coronavirus cases in Europe amid vaccine rollout challenges and widened lockdown measures in some countries, including France, drove demand for core bonds, causing yields to fall midweek onward. They were pushed lower after European Central Bank President Christine Lagarde said the end of the Pandemic Emergency Purchase Programme is “not set in stone.” Peripheral government bond yields largely tracked core markets. UK gilt yields rose primarily due to the sell-off in U.S. Treasuries, the efficient vaccine rollout in the UK, and the easing of restrictions in England.

The major US benchmarks closed higher for the holiday-shortened trading week. The large-cap S&P 500 Index made news on Thursday for crossing the 4,000 threshold for the first time, and the S&P MidCap 400 Index also set a new intraday record. The technology-heavy Nasdaq Composite index led the advance, however, helped by gains in a wide range of semiconductor and hardware stocks, as well as a rally on Facebook shares. The consumer staples and materials sectors lagged within the S&P 500. Relatedly, growth stocks widely outperformed value shares for the first time since January.

The jobless claims data seemed to drive a decline in the yield on the benchmark 10-year U.S. Treasury note at the end of the trading week. (Bond prices and yields move in opposite directions.) Municipal bonds continued to outperform Treasuries for much of the week, as the technical tailwinds of muted supply and strong cash flows remained intact.

Japanese markets were also buoyed late by technology stocks, mirroring gains on the tech-heavy Nasdaq index. The benchmark Nikkei 225 Stock Average finished ahead 0.7% for the week through Thursday, while the broader TOPIX closed approximately 1% lower. A spike in U.S. Treasury yields saw the U.S. dollar climb to a one-year high against the yen on Wednesday and, at Thursday’s close, the USD was trading in the high JPY 110 range.

Chinese equities were strong ahead of a long weekend, with sentiment buoyed by the news of an additional tax reduction of RMB 550 billion to consolidate the economic recovery, strong March purchasing manager’s index data, and the better tone of U.S. and global markets. From the previous Friday to Thursday, April 1, the CSI 300 and Shanghai Composite each rose by 1.4%. In the bond markets, yields were flat over the week, with the 10-year sovereign bond yielding 3.22%. FTSE Russell confirmed the inclusion of Chinese central government bonds (CGBs) in its WGBI global bond index, with a 36-month phase in from the end of September 2021.

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. Brent futures rose $2.62, to settle at $69.36 a barrel. WTI crude rose $2.26 for the week, Brent was up 5.2%, rising for a seventh week in a row for the first time since December, while WTI was up about 7.4% after gaining almost 4% last week.

Gold finished the week under $1,700 an ounce and at a 9-month low and is now more than $290 an ounce under its all-time high of $2.089 last August. Silver fell as well, following gold lower but suffering a larger, 0.65% drop to end the week at $25.295. Silver shed 5.6% in value over a rough week.