Market Update 17/05/21
Europe’s shares fell with global markets amid signs of accelerating inflation, sparking fears that interest rates could rise. In terms of local currency, the pan-European STOXX Europe 600 Index ended the week 0.54% lower. Major indexes were mixed. Germany’s Xetra DAX and France’s CAC 40 were little changed, but Italy’s FTSE MIB rose 0.63%. The UK’s FTSE 100 pulled back 1.21%, in part because the British pound appreciated relative to the U.S. dollar after local election victories for the ruling Conservative Party. The FTSE 100 index tends to fall when the pound rises, because many companies in the index are multinationals that generate a significant proportion of their revenues abroad.
Bond yields in the Eurozone rose. A higher-than-expected inflation print in the U.S. triggered a sell-off in high-quality government bonds, causing core yields to rise in tandem with U.S. Treasury yields. Peripheral eurozone bonds largely tracked the moves in core markets. Fears of slowing bond purchases by the European Central Bank (ECB) also led to higher yields. UK gilt yields also tracked U.S. Treasury yields amid global weakness in government bonds.
US stocks slipped back from record highs as investors showed stark signs of higher inflation, but a late rally moderated the week’s decline. Tesla’s weakness weighed in particular on consumer discretionary shares, and Elon Musk’s announcement that the electric car maker would no longer accept Bitcoin as a payment because of its carbon footprint has led to a sell-off in the cryptocurrency. At its low point on Wednesday, the technology-heavy Nasdaq Composite index was down roughly 8.5% from its intraday April 29 peak, still above the widely accepted 10% threshold for a correction.
The bond market appeared to take its cue from the Fed, with the yield on the benchmark 10-year U.S. Treasury note increasing, but staying well below its late-March highs. (Bond prices and yields move in opposite directions.) Municipal bonds outperformed Treasuries through most of the week, but posted negative returns.
Japan’s stock markets recorded significant losses for the week amid a bout of volatility after an unexpectedly sharp rise in the US consumer price index. Accelerating coronavirus infection rates and the announcement that a state of emergency will be declared in three more prefectures also dampened risk sentiment. The Nikkei 225 fell 4.34%, while the broader TOPIX Index was down 2.57%. Risk-off sentiment led the 10-year Japanese government bond yield to rise to 0.09%, while the yen weakened slightly, finishing the week at around JPY 109.41 against the U.S. dollar.
Chinese stocks rose sharply for the week. The benchmark Shanghai Stock Exchange Composite Index gained 2.1%, while the large-cap CSI 300 Index advanced 2.3%. The yield on China’s sovereign 10-year bond ended unchanged at 3.17% after a week of mixed economic data. In April, China reported net inflows of $9 billion into the country’s government bonds. Beijing is keen to attract foreign investment into its domestic green bond market, used to finance renewable energy and other green projects. In currency trading, the Renminbi gained 0.3% against the U.S. dollar, closing at 6.434 per dollar.
In commodities, Gold settled at $18.38 a tonne, up $14.10 an ounce or 0.8%. That left the metal hardly changed from the previous week’s close. Silver rose 1.5% on Friday to end at $27.65 a tonne. Oil was weaker, on Thursday but bounced higher on Friday to end up 0.7% at $65.37 for West Texas Intermediate. Brent also edged higher, settling at $68.71. WTI was up around 1% for the week, Brent by 0.8%.
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.