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Market Update

28th May – 4th June 2021

Equities in Europe rose amid optimism around the possibility of an economic recovery. Concerns that central banks may begin withdrawing stimulus sooner than anticipated because of inflationary pressures curbed equities’ advance. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 0.80% higher. Italy’s FTSE MIB Index climbed 1.59%, Germany’s Xetra DAX Index gained 1.11%, and France’s CAC 40 Index added 0.49%. The UK’s FTSE 100 Index rose 0.66%.

Core eurozone bond yields drifted lower as remarks from some policymakers contributed to expectations that the European Central Bank (ECB) would likely choose to maintain the pace of bond purchases at its June 10 meeting. Yields in peripheral European bond markets tracked their core counterparts. UK gilt yields mostly followed the upward move in U.S. Treasury yields.

The major US indexes closed somewhat higher in a shortened trading week, with markets closed Monday in observance of Memorial Day. Energy shares performed best within the S&P 500 Index as oil prices reached their highest level in two years. Consumer discretionary shares lagged, weighed down by a decline in Tesla. Trading volumes were generally light, as is typical of the beginning of the summer holiday season.

After increasing early in the week, the yield on the benchmark 10-year U.S. Treasury note fell back on Friday following the May payrolls report. (Bond prices and yields move in opposite directions.) The broad municipal bond market outperformed Treasuries over much of the week. According to the latest data from Lipper, municipal bond funds industrywide received net inflows of nearly USD 1 billion for the week ended June 2, including strong flows into tax-exempt high yield portfolios.

Eurozone inflation increased 40 basis points sequentially to 2% in May– above the ECB’s stated target of “below but close to 2%.” Higher energy costs were a big part of the increase in consumer prices. Core inflation, which excludes volatile food and energy costs, ticked up to 0.9% from 0.8%.

Japan’s stock market returns were mixed for the week, with the Nikkei 225 Index dropping 0.71% and the broader TOPIX Index gaining 0.60%. Sentiment continued to be weak following the government’s extension of the coronavirus state of emergency in Tokyo, Osaka, and seven other prefectures by three weeks to June 20. The yield on the Japanese 10-year government bond was little changed at 0.08%, while the yen weakened to close at around JPY 110.18 against the U.S. dollar.

Chinese stocks pulled back after recording three weeks of gains. The large-cap CSI 300 Index shed 0.7% and the benchmark Shanghai Stock Exchange edged down 0.2%. Foreign investors bought USD 8.7 billion of Chinese stocks in May, the highest single month this year according to Reuters.

In the bond market, the downtrend in yields took a breather. The yield on the 10-year Chinese government bond (CGB) rose 2 basis points to 3.11%, a relatively high level compared with other major government bond yields. Over the last six months, Bloomberg’s local currency index for CGBs returned 3.4%, while the spread over comparable 10-year U.S. Treasury yields tightened almost 100 basis points.

Most commodities finished the week with solid gains, thanks in part to the better-than-expected US jobs data for May, a weaker dollar and continuing positive news on the health of major economies. Oil rose, gold bounced back, as did copper, iron ore jumped 8% over the week.

Gold swayed after jumping the most in 10 months in May to top the $1,900 an ounce level on worries that a faster economic growth could spur inflation, forcing governments and central banks to tighten policy. Helping was the weekly data on US oil stocks– they rose a touch after a couple of weeks of rises. They fell 5.1 million barrels to around 479 million– still 3% under the average for this time of year.

Brent crude rose 58 cents, or 0.8%, to settle at $71.89 a barrel, after touching $72.17, its highest since May 2019. US West Texas Intermediate crude rose 81 cents, or 1.2%, to settle at $69.62. The session high was $69.76, its highest since October 2018.

Lawsons Equity – Financial Advisors Malta

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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