Equities in Europe rose on signs that the economy is rebounding as restrictions instituted to control the coronavirus’s spread began to ease. However, worries about inflation curbed gains. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 0.43% higher. Major indexes were mixed: Italy’s FTSE MIB Index advanced, while Germany’s Xetra DAX Index and France’s CAC 40 Index were little changed. The UK’s FTSE 100 Index fell 0.36%, as strong economic data lifted the British pound versus the U.S. dollar.
Core eurozone bond yields ended higher on expectations that the European Central Bank (ECB) could delay its bond purchases. Peripheral eurozone bond yields fell. Uncertainties over Italy’s economic reform plans and the potential slowing of ECB bond purchases initially drove yields higher, but markets began to stabilise, and peripheral yields ended lower. UK gilt yields fell on concerns about the spread of a new coronavirus strain and its potential to delay the full reopening of the UK economy.
Eurozone business activity accelerated at the fastest pace in three years in May, as virus containment measures eased, a survey of purchasing managers by IHS Markit showed. The flash composite PMI reached 56.9 in May, an improvement from the 53.8 registered in the preceding month. The services sector index climbed to 55.1 from 50.5.
US Stocks posted mixed results in a volatile week of trading, with the large-cap S&P 500 Index ending modestly lower and the tech-heavy Nasdaq Composite Index gaining a little ground. These mixed results likely reflect strength in the U.S. economy, as well as concerns about inflation and the timing of when the Federal Reserve might begin to rein in its accommodative policies. Within the S&P 500, the health care posted the largest gain. Energy and industrials lost ground.
Treasury yields were roughly unchanged for the week. Wednesday’s sharp sell-off in cryptocurrencies sparked a bid for Treasuries. However, yields soon increased following the release of the FOMC’s April meeting minutes, which led investors to pull forward their expected timeline for rate hikes. (Bond prices and yields move in opposite directions.) Municipal bonds recorded modestly positive returns through most of the week.
Japan’s stock markets finished the week higher, with the Nikkei 225 Index returning 0.83% and the broader TOPIX Index up 1.13%. Economic data were mixed, with Japan’s gross domestic product shrinking more than expected in the first quarter. Export growth in April was strong, and manufacturers’ business confidence rose to its highest level since late 2018 in May. The yield on the 10-year Japanese government bond fell slightly to 0.08%, while the yen strengthened, finishing the week at around JPY 108.66 against the U.S. dollar.
Chinese stocks recorded a mixed week. The benchmark Shanghai Composite Index shed 0.1%, while the large-cap CSI 300 Index, whose growth stocks have fallen in recent weeks, added 0.5%. In the fixed income market, yields on Chinese bonds fell following disappointing April economic data. In currency trading, the Renminbi ended the week roughly unchanged versus the U.S. dollar. The renminbi has strengthened since early April against the dollar, driven by China’s widening current account surplus, foreign direct investment, and foreign portfolio investment in Chinese bonds and stocks. The Renminbi’s recent appreciation has pushed the official trade-weighted index—which measures the Chinese currency’s value against a basket of 24 major currencies—close to its 2018 high.
In commodities, Gold ended the week at a settlement of $1,876.70, up 2.1% for the week. The metal rose $5.20 on Friday, or 0.3%. West Texas Intermediate crude moved higher again on Friday, as did Brent Futures, but still shed value over the week. Brent Futures settled at $66.44. WTI rose 2.7% to settle at $63.58. That was a fall of 2.7% for the week, and came as the number of rigs drilling for oil in the US again rose.
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