A flurry of strong company results this week helped alleviate investors’ fears over the impact on earnings of rising inflationary pressures and potential interest rate rises. From Taiwan semiconductor manufacturer TSMC, through to Citigroup and the US drug retailer Walgreens Boots Alliance, all posted forecast-beating results this week. Even the European luxury group LVMH released results showing that Chinese demand had held up despite the manufacturing slowdown and regulatory crackdown in China. Therefore, despite annual US headline inflation being reported above 5% for the fifth month in a row and US unemployment falling to 4.8%, raising expectations for monetary tightening, equity markets made strong gains this week.
As of 12pm London time on Friday, US equities rose 1.1% over the week, with the technology sector climbing 1.7%. European equities are on course for their strongest week since March, having risen 2.2%, whilst the UK market was up 1.7%. The Japanese stock market increased by 3.2%, helped by further weakness in the Yen increasing the competitive position of large industry companies. Emerging markets advanced by 0.8%, with Hong Kong stocks rising by 2.0%, led by the consumer and industrial sectors.
Despite any sign of inflationary pressures abating anytime soon, with pressures if anything broadening out, bond yields, which more inversely to price, fell this week. 10-year US Treasury yields are now trading at 1.54%, UK gilts 1.1% and German bunds -0.18%. Earlier in the week, demand for 10-year and 30-year US Treasury bonds remained robust, with the bid to cover ratio remaining above two times, helping to pull yields lower.
The oil price ground higher this week, with Brent crude now trading at $84.8 a barrel, up 3.0%, and US WTI (West Texas Intermediate) trading at $82.1. Copper jumped by over 10%, with the price having risen above $10,000 once more, currently trading at $10,131. Gold rose 1.5%, now priced at $1,783 an ounce.
The latest US retail sales data is due out later today, which will provide an indication as to whether price rises are choking off demand, or whether retail sales remain a strong driver of the economic recovery. This will provide another piece in the puzzle for the Federal Reserve as to when to commence the tapering of its vast bond-buying programme.
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