Weekly Market Update

Equities in Europe rose on stronger-than-expected earnings results and growing confidence in an economic recovery. In local currency terms, the pan-European STOXX Europe 600 Index finished the week 1.72% higher. The French and German stock indexes climbed by more than 1.5%. Italy’s FTSE MIB Index added 1.95%. The UK’s FTSE 100 Index gained 2.29%.

Core bond yields of the Eurozone fell in the first half of the week on underwhelming US manufacturing data. Yields steadied following a European Central Bank policymaker implied that the institution’s bond purchases could slow down in June. The yields on peripheral eurozone government bonds largely rose. They initially tracked core markets lower, but Italian government bonds then sold off after reports surfaced the country would issue debt with 30-year maturity.

Skepticism over the timing of Italy’s recovery package also pushed peripheral yields higher. UK gilt yields fell, tracking early moves in core markets. The Bank of England then revised its forecast for 2021 UK economic growth to 7.25% from 5%, and said it planned to slow bond purchases, causing a momentary rise in yields.

The major US indexes generated mixed returns across a wide range as a Friday rally wiped out some losses early in the week. The narrowly focused Dow Jones Industrial Average fared best, although the technology-heavy Nasdaq Composite Index recorded its worst weekly decline in two months. Technology shares underperformed within the S&P 500 Index, along with consumer discretionary, utilities, and real estate shares.

The discouraging jobs data triggered a temporary but sharp decrease in Treasury yields on Friday morning, helping temporarily push the yield on the benchmark 10-year note to a two-month low before ending up lower for the week. (Bond prices and yields move in opposite directions.).

In a holiday-shortened week, Japanese equities at least temporarily disregarded worries about the coronavirus and associated restriction measures to record a gain.

The Nikkei 225 rose 1.89%, while the broader TOPIX Index finished 1.83% higher. (The market was closed for Golden Week for the first 3 trading days.) Investor confidence was supported by the prospects of a global economic recovery following better-than-expected U.S. data in recent weeks. The yen was broadly unchanged at just above JPY 109 against the U.S. dollar, while the yield on the 10-year Japanese government bond dropped to 0.08%.

Chinese stocks fell also in a holiday-shortened week. The large-cap CSI 300 Index fell 2.5% from the previous Friday, while the Shanghai Stock Exchange Composite Index shed 0.8%. Mainland markets resumed Thursday after being closed Monday through Wednesday for the Labor Day holiday. The yield on China’s 10-year sovereign bond declined three basis points to 3.17%.

In commodities, copper and iron ore hit new all-time highs on Friday as demand for both commodities continued to surge, especially from China. Gold settled higher as prices remained above $1,800 an ounce at week’s end for the first in three months. Gold closed up 0.9% or $1,560 to settle at $1,831 an ounce. Silver rose 6.1% last week after settling Friday at $27.477 an ounce.

US energy companies added oil and natural gas rigs for a second week in a row, as higher oil prices prompted more drillers to return to the field. Oil futures rose 2.1% last week for US West Texas crude, which ended up 0.3% on Friday at $64.90. Brent futures rose 2.7% for the week to settle at $68.28 a barrel.

Shares in Europe fell amid worries that rising coronavirus cases could slow the pace of economic recovery. These fears overshadowed strong corporate earnings. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 0.78% lower. Major country benchmarks also fell: Italy’s FTSE MIB declined 1.45%, Germany’s Xetra DAX Index slid 1.17%, and France’s CAC-40 Index pulled back by 0.46%. The UK’s FTSE 100 Index dropped 1.15%.

Core bond yields in the Eurozone ended the week roughly flat. Optimism about the vaccine rollout drove yields higher early in the week. This move reversed after European Central Bank President Christine Lagarde said it was too early to withdraw stimulus measures. UK gilt yields fell, tracking U.S. Treasury yields amid volatility in equity markets and the Biden administration’s proposition to raise taxes on higher-income earners.

US stocks have changed little in an up-and-down week, amid some of the lightest daily trading volumes of 2021. Small-caps performed slightly better than large-caps, and the technology-heavy Nasdaq Composite Index modestly lagged the broad market. No particular theme– such as companies that would most benefit from economic re-openings or stocks popular with individual investors– dominated the week’s activity, although semiconductor stocks were notably weak.

Stocks fell significantly in trading on Thursday on news headlines that President Joe Biden plans to propose nearly doubling the long-term capital gains tax rate for taxpayers who earn more than $1 million a year. The tax hike would be used to finance some of the measures in Biden’s American Families Plan, which could be proposed formally next week, and could include free tuition fees for community colleges, child care subsidies, and other health or education spending. Stocks recovered some of their intraday losses, as investors seemed to realize that negotiations in Congress would likely bring any final tax increase lower than Biden’s initial proposal. U.S Treasury yields modestly decreased as the Biden capital gains tax increase news supported demand for less risky assets.

Despite a brief rally on Thursday, it was a disappointing week for Japanese equity markets– weighed down by weakness across all sectors as the government enhanced its response to deal with surging coronavirus cases. The Nikkei 225 Index shed more than 650 points over the week, briefly falling below the 29,000 mark before finishing the week 2.2% lower at 29,020.63. The broader TOPIX Index also closed down. The yen weakened against the U.S. dollar, trading just below JPY 108 on Friday, while the yield of the benchmark 10-year Japanese government bond reflected the more cautious landscape, finishing the week lower at 0.069%.

In China, the large-cap CSI 300 Index advanced 3.4% for the week, while the country’s benchmark Shanghai Composite Index added 1.4%. Chinese stocks rose steadily since Monday, when mainland equity markets received inflows totalling USD 2.5 billion from Hong Kong via Stock Connect, marking the third-largest single-day inflow from Hong Kong investors. In the bond market, the yield on China’s sovereign 10-year bond increased one basis point to 3.18%.

Copper starred in commodity markets last week as a weaker US dollar increased demand and improved market fundamentals. Copper topped $4.33 a pound– the highest it has been since August 2011 and moving past the previous nine-year plus high hit in early March around $4.29 a pound. That left copper up 4% for the week and more than 23% for the year to date. A year ago, it was down around $2.17 a pound (March 22) in the midst of the first pandemic lockdown.

Gold prices ended Friday down 0.1% at $1,777.80 an ounce for a loss for the week of 0.03%. Silver settled at $US26.075 for a tiny gain for the week of 0.04%. Oil fell on Friday and was down 1.6% for the week, settling at $62.14 a barrel. Brent crude ended the week at $66.11, down 0.90%.

Shares in Europe rose in hopes of a strong revival in the global economy and corporate earnings, despite a resurgence in coronavirus infections. In local currency terms, the pan-European STOXX Europe 600 Index posted a seventh successive week of gains, rising 1.20%. Germany’s Xetra DAX Index advanced 1.48%, France’s CAC 40 gained 1.91%, and Italy’s FTSE MIB added 1.29%. The UK’s FTSE 100 Index added 1.5%.

Core bond yields in the Eurozone edged higher as investors sold existing bonds to create space for long-dated issues from a number of Eurozone countries. News reports suggesting that Europe would receive additional vaccine supplies in the second quarter also lifted yields. Yields dropped slightly after the US imposed new sanctions on Russia. Yields in peripheral European economies widely tracked the core markets this week. UK gilt yields broadly followed U.S. Treasury yields lower.

Most of the major US benchmarks recorded their fourth successive week of gains and moved to record highs. The technology-heavy Nasdaq Composite Index and the small-cap Russell 2000 Index slightly lagged the large- and mid-cap benchmarks and remained below their recent highs. Health care shares were particularly strong within the S&P 500 Index, helped by gains in insurance stocks, while rising gold and copper prices improved mining shares. Energy shares were about flat after dropping at the end of the week. Despite stronger-than-expected economic data, U.S. Treasury yields fell over the week, with the 10-year Treasury note yield declining to 1.57% from 1.67% the previous Friday.

Japanese stock markets were mixed during the week, with both the Nikkei 225 Stock Average (-0.6%) and the broader TOPIX (-0.3%) ultimately finishing the period marginally lower. The yen weakened a little against the U.S. dollar, closing in the high JPY 108 range. Benchmark 10-year government bond yields declined, finishing the week at 0.085%.

The Shanghai Composite broad market index of A-shares fell 0.7% over the week to Friday. The CSI 300 large-cap index, with its higher weight in technology stocks, fell 1.4%. Chinese and Asian markets were broadly higher Friday, following key Chinese economic data. The yield on the 10-year Chinese central government bond fell five basis points (0.05%) to 3.18%. Liquidity assurances from the People’s Bank of China, China’s central bank, also helped ease worries about a possible increase in funding costs. In foreign exchange markets, the Renminbi had a good week, gaining 0.5% against the U.S. dollar.

There was a positive outlook all around for commodities, as they closed up the week with good gains. The weaker dollar for most of the last week also helped boost oil prices (and gold). West Texas Intermediate (WTI) crude, the US benchmark, fell 33 cents to settle at $63.13 a barrel Friday, while Brent Crude for June delivery eased 17 cents to $66.77 a barrel. That left WTI oil up around 6.3% for the week, and Brent 5.8% higher thanks to the International Energy Agency and OPEC raising their demand forecasts for the rest of 2021, and a larger than anticipated fall in US oil stocks, especially on the East Coast.

Gold for June delivery rose $13.40 to $1,780.20 an ounce. Silver for May delivery rose 15 cents to $26.11 an ounce, and May copper fell 5 cents to $4.1680 a pound. That left gold up 1.9% for the week, silver up 2.8%, and copper gained almost 3%, despite that substantial fall on Friday (a surprise given the solid Chinese production and investment data, as well as the upbeat GDP number).

Shares in Europe rose on growing hopes that injections of fiscal stimulus and pacifistic central bank policies would stimulate a global economic rebound. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 1.16% higher. Major stock indexes were mixed. France’s CAC 40 gained 1.09%, Germany’s Xetra DAX Index added 0.84%, and Italy’s FTSE MIB fell 1.14%. The UK’s FTSE 100 Index advanced 2.65%, to some extent owing to a weaker UK pound, which fell on worries about vaccine supply issues and profit taking after a strong quarter.

Treasury bond yields in the eurozone ended slightly higher. They initially rose on the better-than-expected U.S. jobs data released the previous week, before falling on worries about the slow progress in Europe’s vaccination program. Once conditions become favourable, yields climbed again after minutes from the European Central Bank’s March meeting suggested it was willing to slow bond purchases. Peripheral Eurozone yields were mixed. Italian yields rose as investors sold existing bonds to include the country’s unexpected sovereign bond offering. Portuguese and Spanish bond yields fell on vaccine worries and tighter coronavirus restrictions. UK gilt yields followed U.S. Treasury yields lower.

Most of the major US benchmarks moved gradually higher to record highs, although the small-cap Russell 2000 Index recorded a modest loss. The technology-heavy Nasdaq Composite Index outperformed the broad market S & P 500 Index, but remained below its February peak. Tech shares also gained back the lead within the S&P 500 during the week, assisted by solid gains in Apple and Microsoft– which together represent roughly 40% of the sector’s market capitalisation.

The yield on the benchmark 10-year U.S. Treasury note increased to some degree on Friday morning in response to the producer price inflation data but moved slightly lower for the week as a whole. (Bond prices and yields move in opposite directions.) Speaking Thursday before the International Monetary Fund (IMF), Fed Chair Jerome Powell stressed that the global economy would remain fragile until the pandemic is brought under firm control and that the U.S. recovery remained “incomplete and uneven.”

Japanese stock markets started the week positively, with the extensively followed Nikkei 225 Stock Average breaking through the 30,000 mark early in the period. The rest of the week made for a more mixed picture, however, and the Nikkei 225 ultimately finished slightly lower than it started. The broader TOPIX was also marginally lower. The yen strengthened a little against the U.S. dollar, closing in the high JPY 109 range. Benchmark 10-year government bond yields were a little lower at just above 0.10%.

Chinese stocks recorded a weekly loss, extending several weeks of underperformance against other major global markets. The large-cap CSI 300 Index fell 2.4% and the benchmark Shanghai Composite Index shed 1.0%. In fixed income markets, the yield on China’s 10-year bond rose slightly to close at 3.21% amid signs of ongoing economic recovery. Global funds reduced their holdings of Chinese government bonds in March for the first time since February 2019, Bloomberg published.

Commodity prices were also mixed with oil down but metals like gold, iron and copper ore up for the week. US West Texas Intermediate (WTI) crude dipped 0.5% to settle at $59.32 a barrel, while Brent Crude settled at $62.95 a barrel, down 0.4% the day. For the week WTI fell 3% and Brent was off 2.8%. Gold fell from Thursday’s one-month peak, weighed down by a rebounding dollar and rising Treasury yields. It settled at $1,744,80, down 0.8% on the day but up the same amount for the week.

Shares in Europe rose on hopes of an economic recovery, turning around previous losses resulting from concerns about added restrictions to curb the spread of the coronavirus and the European Commission’s (EC) threat to stop vaccine exports. In local currency terms, the pan-European STOXX Europe 600 Index added 0.85%. Major stock indexes were mixed: France’s CAC 40 ended the week down modestly, while Italy’s FTSE MIB, Germany’s Xetra DAX Index, and the UK’s FTSE 100 Index posted gains. Elsewhere, UK inflation took a surprise dip and one of the world’s biggest container ships blocked a major trade route, the Suez Canal.

Core and peripheral eurozone government bond yields fell over all. Concerns over Europe’s sluggish vaccine rollout amid the onset of a fresh wave of coronavirus infections drove demand for high-quality government bonds. Data showing an EUR 7.1 billion increase in the European Central Bank’s weekly bond purchases also weighed on yields. Gilt’s yields fell on worries the EC could block vaccine exports to the UK, potentially slowing down the country’s vaccination campaign. Weaker inflation data, which pushed out expectations of the Bank of England to tighten up its monetary policy, also led to lower yields.

The major US indexes have been mixed for the week, as investors seem to continue to weigh a positive outlook about reopening against inflation and interest rate concerns. Small-cap stocks lagged for the second consecutive week, signalling a potential pause or turn around in their recent market position. Likewise, communication services stocks fared worst within the S&P 500 Index, dragged down by sharp declines in shares of several traditional media companies following a stretch of strong performance.

Inflation data – perhaps at the top of the list of current investor concerns – remain muted. The personal consumption index (excluding food and energy) increased by 1.4% year-on-year in February, down from 1.5% in January and still well below the Federal Reserve’s 2% target. On Wednesday, both Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen testified before Congress that they saw little danger of an overheating economy.

The yield on the 10-year U.S. Treasury notes fell much of the week, but seemed to rise in response to Thursday’s claims data. Stability in the yield of the notes boosted the performance of high yield bonds. However, the asset class experienced some weakness due to growing virus concerns throughout Europe.

Japan’s stock markets suffered considerable losses, even though they were able to recover some lost ground later in the week. The Nikkei 225 Stock Average fell 2.1% while the broader TOPIX gave up 1.4%. The yen weakened, closing at just below JPY 110 compared to the US dollar. The yield of the 10-year Japanese government bond ended up the week lower, at 0.08%.

Chinese stocks recorded a weekly gain, thanks to a rally on Friday after the country’s central bank signalled it was not about to tighten monetary policy. The Shanghai Stock Exchange Composite (SSEC) Index rose 0.4% to 3418.3, while the large-cap CSI 300 Index ended up 0.6% at 5038.0, its first weekly gain after five straight weeks of losses. Since reaching a record high on February 18, the CSI 300 has fallen 15%, while the SSEC is 8% below a 5 1/2- year high also touched on February 18. In China’s bond markets, the yield on the sovereign 10-year bond closed at 3.22%, off four basis points from the previous week, amidst expectations that monetary policy would remain supportive in the near term.

The fiasco in the Suez Canal reigned over commodity markets last week and will do so this week as oil prices kicked higher again on Friday, copper and gold rose, as did iron ore. The Suez blockage saw US West Texas Intermediate crude rise 4.1% to $US60.97 a barrel on Friday while Brent crude in Europe was up 4.04% a barrel to $US64.43. But for the week WTI fell 1.1% and Brent eased 0.4%. Gold rose 0.4% to $US1,732.30 on Friday, but shed 0.5% for the week for the first negative week in the last three.

Shares in Europe rose over the week as the U.S. prepared to inject a massive amount of fiscal stimulus into the economy and the European Central Bank (ECB) promised to buy more bonds to counter rising borrowing costs. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 3.52% higher. Germany’s Xetra DAX Index climbed 4.18%, France’s CAC 40 advanced 4.56%, and Italy’s FTSE MIB gained 5.00%. The UK’s FTSE 100 Index added 1.97%.

Core eurozone government bond yields fell. The ECB announced it would accelerate bond purchases in the second quarter to suppress the recent rise in yields, pushing bond prices up. Fourth-quarter gross domestic product (GDP) for the region was also revised down slightly, further suppressing yields. Peripheral eurozone government bond yields largely tracked core markets. UK gilt yields also declined broadly. However, optimism coming from the UK’s vaccine rollout and the final approval of U.S. fiscal stimulus helped to moderate this decline later in the week. Better-than-expected January GDP data for the UK also supported gilt yields relative to other developed markets.

The ECB’s latest estimations call for EU GDP growth at 4% in 2021, an increase from the 3.9% expansion that the central bank forecast in December. The ECB also revised its inflation outlook to 1.5% from 1% for 2021 and adjusted its 2022 estimate to 1.2% from 1.1%. ECB President Christine Lagarde credited these adjustments primarily to “temporary factors and higher energy price inflation.”

UK economic output shrank 2.9% sequentially in January due to a sharp slowdown in the services sector, official data presented. Economists in a Reuters survey had forecast a 4.9% contraction, likely reflecting the new lockdown measures instituted at the start of the year. Exports of UK goods to the EU, excluding gold and other precious metals, fell 40.7% from the preceding month. UK imports from the EU tumbled 28.8%.

US Stocks moved broadly higher for the week, raising most of the major benchmarks to new records. Investors seemed to remain focused on fluctuating longer-term bond yields and the discount they place on future earnings, resulting in substantial swings in the technology-oriented Nasdaq Composite Index. Shares in heavily weighted automaker Tesla rebounded after the previous week’s sell-off, lifting the consumer discretionary sector. The small-cap Russell 2000 Index outperformed and extended its recent market leadership, ending the week up roughly 19% on a price (excluding dividends) basis for the year to date.

The week started out on a down note as the yield on the benchmark 10-year U.S. Treasury note stayed near one-year highs. Bond yields retreated over the following days, which seemed to provide a lift to sentiment. Tesla and other high-growth stocks that had sold off in previous weeks were particularly strong as interest rate fears abated. On Wednesday, the Labor Department reported that core (excluding food and energy) consumer prices had increased only 0.1% in February, slightly below expectations. Core producer prices, reported Friday, rose 0.2%, in line with expectations and well below January’s 1.2% jump.

The Nasdaq gave back some of its gains after Treasury yields bounced back Friday to end higher for the week. (Bond prices and yields move in opposite directions.) The broad municipal bond market posted strong gains through most of the week as cash flowed back into the market and new issuance remained relatively modest

Japan’s stock markets advanced over the week, with the Nikkei 225 Stock Average gaining 2.96% and the broader TOPIX Index up 2.89%. Japanese value stocks continued their strong outperformance relative to their growth peers, amid increased global interest in companies whose fortunes are closely tied to the economic cycle: The TOPIX Value Index has surged so far this year. The yen weakened to near a nine-month low, closing above JPY 109 versus the U.S. dollar. The yield of the 10-year Japanese government bond finished the week at 0.11%.

Chinese stocks posted a weekly loss as the Shanghai Composite Index fell 1.4% and the large-cap CSI 300 Index shed 2.2%. Despite recent weeks’ underperformance, investor appetite for Chinese stocks appeared undiminished. Net inflows into Chinese stocks have turned neutral for the first time since November, according to data from global custodian bank State Street, reflecting improving demand from China’s major trading partners and the country’s ongoing recovery. The recent weakness in Chinese stocks comes as Beijing appears to be focusing more on longer-term economic restructuring and financial deleveraging amid a strong post-pandemic recovery. In the bond market, the yield on China’s sovereign 10-year bond declined nine basis points to 3.27% for the week.

Commodities face another buffeting this week with the US Federal Reserve meeting, statement and forecasts very likely to send prices in all directions. Ahead of the meeting, last week saw oil prices fall, gold weaken, silver rise, copper remain solid and iron ore lose up to 5% by Friday’s close.

Global benchmark Brent futures fell 0.6% on Friday and West Texas Intermediate also dipped 0.7% for its first weekly decline in three weeks.Both Brent and WTI down slightly for the week after rising more than 10% over the past two. WTI settled at $US65.58 per barrel and Brent settled at $US69.20.

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

In the United Kingdom, Lawsons Equity Limited is deemed authorised and regulated by the Financial Conduct Authority. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.

Shares in Europe ended higher this week, buoyed by the possibility that easing restrictions implemented to suppress the coronavirus’s spread and encouraging monetary and fiscal policies could set the stage for an economic recovery. However, growing expectations curbed gains that central banks would act to stem inflation. The pan-European STOXX Europe 600 Index rose 0.91% in local currency terms. Major stock indexes also advanced, while the UK’s FTSE 100 Index climbed 2.27% on the week, lifted by finance minister Rishi Sunak’s annual budget, which called for more fiscal stimulus, and the Office for Budget Responsibility’s forecasts that the economy would recover to its former size earlier than previously expected.

Core and peripheral eurozone bond yields rose as long-term inflation expectations strengthened. Doubt about whether the European Central Bank would act to suppress the increase in borrowing costs, combined with the Federal Reserve reiterating its pacifistic stance, gave yields another boost. UK gilt yields broadly moved higher, lifted by Sunak’s unveiling of the annual budget.

In his budget speech to Parliament, Sunak pledged GBP 65 billion of additional fiscal spending in a temporary tax and the short term break for business investment. He extended welfare payments and the jobs-support program until September. But most individuals will have to pay more tax over time, and corporate taxes would rise to 25% in 2023 from 19% currently.

The major US benchmarks finished mixed as longer-term interest rates continued their ascent. The rise in rates again weighed on growth stocks by increasing the discount on future earnings, while value stocks managed gains, according to Russell indexes. Within the S&P 500 Index, energy shares outperformed as oil prices hit their highest levels in over a year. Technology shares were broadly weak, while consumer discretionary stocks continued to be dragged lower by electric vehicle maker Tesla.

The US Treasury sell-off rattled on this week, intensified by assurances from Federal Reserve chair Jay Powell, the central bank would stick to its monetary policy and better than expected US non-farm payroll figures. The 10-year Treasury yield traded flat at 1.56% after popping above 1.61% to hit a 2021 high following the employment growth. The superstar US tech stocks continued to bear the heat with shares in Apple, Amazon, Microsoft and Alphabet losing more than 2% on Wednesday.

Japan’s stock markets produced mixed returns for the week, with the Nikkei 225 Stock Average dropping 0.35% and the broader TOPIX Index gaining 1.70%. The yen weakened and closed above JPY 108 versus the U.S. dollar. The yield of the 10-year Japanese government bond finished the week at 0.09%, its lowest level since mid-February, on dovish comments from the Governor of the Bank of Japan.

Chinese shares fell in choppy trade as rising U.S. yields and inflation expectations spilled into the country’s stock market. The large-cap CSI 300 Index fell 1.4%, while local currency A shares shed 0.2%. Technology shares fell in sympathy with recent highflying names related to consumers, electric vehicles, and property management. The yield on China’s sovereign 10-year bond rose to end the week at 3.36%, and the renminbi currency ended broadly flat against the U.S. dollar.

How soon China will normalise economic policy after the coronavirus crisis is a more urgent concern to investors. On Friday, China unveiled its official 2021 growth target of above 6%, a goal widely perceived as conservative. Beijing also decreased its fiscal deficit target to 3.2% of gross domestic product from 3.6% in 2020, as widely expected.

Oil prices rose 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. The surge took weekly gains to between 5% and 7% for Brent and West Texas Intermediate (WTI) crude as prices reached levels last seen in January 2020. Gold drooped again, as did silver, iron ore faded, but copper bounced on Friday. Gold finished the week under $US1,700 an ounce and at a 9-month low. While the stronger US dollar played a significant part in the weakness on Friday, it didn’t impact copper (or oil) which rose by nearly 2.5% on the day.

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

In the United Kingdom, Lawsons Equity Limited is deemed authorised and regulated by the Financial Conduct Authority. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.

Focus was on interest rates last week, as the increase in government bond yields sped up, unsettling both equity and fixed-income markets. Bond volatility has risen to the highest level since April last year and spread to other asset classes.

The major benchmarks pulled back sharply in response to the steep rise in longer-term Treasury interest rates. The S & P 500 index recorded its largest weekly decline in a month, while the Nasdaq Composite Index suffered its worst decline since October. Consumer discretionary shares were specifically weak, driven in part by a steep decline in the automaker Tesla, while a decline in Apple shares weighed on the information technology sector. Energy stocks outperformed as oil prices rose. 

Consumer inflation data published earlier in the month surprised on the downside, but producer prices, reported at mid-month, rose 1.3% in January, much more than consensus expectations and the largest increase in data going back to 2009. Inflation has also been pronounced in the housing sector, and Tuesday brought news that home prices had increased 10.1% in December from a year before. Relatedly, lumber futures have reached record highs, while copper prices are at their highest levels in a decade.

Inflation concerns, stronger-than-expected economic data, technical factors, and weak auction results combined to push the yield on the benchmark 10-year U.S. Treasury note to around 1.61% on Thursday afternoon, its highest level in over a year. The broad municipal bond market also was affected through most of the week as tax-exempt yields continued to follow Treasury yields upward.

Shares in Europe dropped along with global markets. Trading was volatile during the week as worries grew that central banks might need to act sooner than anticipated to subdue inflationary pressures that could come with an economic recovery. In local currency terms, the STOXX Europe 600 Index ended the week 2.38% lower. Major Continental stock indexes decreased, as did the UK’s FTSE 100 Index, which came under pressure from a stronger British pound. The currency rose to its highest level in almost three years, reaching USD 1.42 before pulling back from this peak, as the swift rollout of coronavirus vaccines fuelled recovery hopes and investors priced in an interest rate hike over the next two to three years.

Core and peripheral eurozone government bond yields rose, tracking moves in U.S. Treasury yields. Pacifistic rhetoric from Fed Chair Powell triggered a sharp bond sell-off throughout most developed markets as it struggled to ease fears of inflation rising. Christine Lagarde, president of the European Central Bank, and other policymakers warned markets they were keeping an eye on borrowing costs, but the consequent decline in yields was temporary. Gilt yields also rose in line with other developed markets.

British finance minister Rishi Sunak is predicted to extend the jobs support program until at least May in his budget next week, and there may be state support for sectors hit the hardest by the lockdowns, such as aviation. Denmark also said it would ease restrictions in the retail sector and allow some schools to reopen on March 1.

Fourth-quarter German gross domestic product (GDP) data were revised up unexpectedly to a growth rate of 0.3% from an initial estimation of 0.1% on strong exports and solid construction activity. The full-year figure was increased to -4.9% from -5.0%. The Eurozone Economic Sentiment Indicator rose to 93.4 in February from 91.5 the month before, the highest since March last year, the EC said. 

Japan’s stock markets tumbled on Friday, the last trading day of the month, ending sharply lower for the holiday-shortened trading week. Japan’s stock markets were closed on Tuesday, February 23, in observance of the Emperor’s Birthday. For the week, the Nikkei 225 Stock Average declined 3.5% (1,052 points) and closed at 28,966.01. Chinese shares fell in tandem with the global sell-off. The Shanghai Composite Index shed 5.1%, while the large-cap CSI 300 Index fell 7.7% in its worst weekly performance since October 12, 2018.

Important economic data being released next week include the PMI composite, jobs data, and consumer credit levels.

Equities suffered their biggest weekly loss in three months last week as volatile trading continued in some areas of the market. President Joe Biden has experienced a resistance against his $1.9 trillion fiscal stimulus package, leading to concerns it will have to be diluted to get passed, whilst Europe publicly strains with the rollout of vaccines.

U.S. stocks fell % over the week, with U.S. technology stocks falling 1.5 %. European stocks lost 2.2%, while UK stocks fell 3.2%, although much of the pain was in high-yield stocks, which suffered from the continued strength of sterling as the currency rose to $1.37 and $1.12 against the dollar and euro, respectively. Japanese stocks fell 2.6% and Australian stocks lost 2.8%.

Emerging markets fell 3.0%, with domestic Chinese stocks down 3.4% and Hong Kong stocks down 4.0% as the People’s Bank of China withdrew $23.2 billion in liquidity from the market to try to protect against asset bubbles from forming in the markets.

Haven assets like US Treasuries rose this week, with the yield on 10-year German government bonds, which moved inversely, temporarily falling below 1% and now trading at 1.07%, with 10-year German Bunds trading at -0.51% and UK Gilts at 0.32%.

Market volatility has increased despite the strong start to the company’s earnings season. Of the 34% of companies included in the main US equity index, 82% have exceeded earnings expectations, with an average earnings per share outperformance of 19%. Not as many companies have published results in Europe, of those that have, earnings have followed a comparable pattern, with 62% exceeding expectations with an average earnings per share outperformance of 20%.

The US stock market suffered its worst sell-off since October 2020 on Wednesday, due to concerns President Biden’s fiscal package needs to be diluted to enforce it, and disappointing news about the introduction of vaccines in many countries, particularly Europe. This has led to a high-profile disagreement between pharmaceutical company AstraZeneca and the European Commission over the anticipated delivery of Covid19 vaccines in the first quarter of 2021 relative to the volume ordered, with a major shortage probable.

The introduction of the vaccine in Europe became even more complicated when the German Vaccination Committee decided AstraZeneca’s vaccine should only be provided to people under 65, while they found inadequate trial data for more mature age groups.

Market volatility is worsened by well-organized retail investors who use online message boards like Reddit to target hedge funds that are shorting individual stocks. By purchasing heavily shortened stocks and driving up stock prices, these retail investors forced many hedge funds to close their short positions as their losses mounted. Retail investors will gain if the share price continues to rise, as hedge funds attempt to cover their short positions by buying shares. One high-profile hedge fund, Melvin Capital, lost $3.7 billion in the first three weeks of January as a result of such a targeted ploy by retail investors.

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Weekly market update 01/01/21. The major US indexes hit all-time highs but ended the week mixed, with small-caps recording losses. Stocks closed out a year of solid gains led by the technology-heavy Nasdaq Composite Index, which notched its best annual performance since 2009. Health care shares outperformed within the S&P 500 Index, and consumer discretionary shares were also strong, helped by gains in a new arrival to the index, electric vehicle maker Tesla. Energy stocks lagged, and the large technology sector was also weak. Trading was relatively light ahead of the market’s closure on Friday in observance of the New Year’s Day holiday.

Stocks began the week on a positive note, helped by President Donald Trump’s signature of a USD 900 billion coronavirus relief bill on Sunday night. The Dow Jones Industrial Average rose 197 points (0.7%) to 30,606, the S&P 500 Index was up 24 points (0.6%) at 3,756, while the Nasdaq Composite was 18 points (0.1%) higher at 12,888. For the year, the DJIA rose 7.3%, the S&P 500 Index gained 16.3%, and the Nasdaq Composite jumped 43.6%.

Three giants—Apple, Amazon.com, and Microsoft —generated 53% of the S&P 500′s total return in 2020,. Furthermore, information technology—just one of 11 sectors overall—accounted for about 69% of the index’s total return.

Shares in Europe rose over the week, lifted by the UK-European Union (EU) trade accord and the approval of the U.S. fiscal stimulus package. The UK’s FTSE 100 Index recorded modest losses, partly due to the stronger British pound, which reached USD 1.3675, its highest level in a year. The pan-European STOXX 600 edged 0.3% lower, still staying close to a 10-month high.

The STOXX 600 index recorded a 3.7% drop in 2020. Still, the index is only 7% below its record high after rallying about 50% from March lows and as expectations of more stimulus, the rollout of coronavirus vaccines and a Brexit trade deal sealed last week raised bets on a stronger recovery in 2021.The FTSE 100 fell 1.5% and Paris’s CAC 40 dropped 0.9%. Spanish stocks fell 1%.

The UK government extended its strictest restrictions to additional areas, seeking to curb a surge in infections, hospitalisations, and deaths caused, in large part, by a new variant of the coronavirus. After regulatory approval, the authorities began deploying a second vaccine, one produced by AstraZeneca and Oxford University, enabling the government to accelerate its inoculation program. EU countries began to distribute the Pfizer/BioNTech vaccine to those most at risk. The EU also exercised its option to buy another 100 million doses of the vaccine.

Japanese stocks rallied in the shortened trading week through Wednesday. The Nikkei 225 Stock Average advanced 3.0% (788 points) and closed at 27,444.17, just off the 30-year closing high set on Tuesday. For the year, the benchmark gained 16.0%. Neither the large-cap TOPIX Index nor the TOPIX Small Index, broader measures of the Japanese stock market, performed as well. In 2020, the TOPIX gained 4.8% and the TOPIX Small Index recorded a -2.2% return. The yen was modestly stronger versus the U.S. dollar and closed the year near JPY 103, about 5.0% stronger versus the U.S. dollar.

Chinese stocks finished the week at multiyear highs as investors anticipated stronger growth in 2021. The country’s benchmark SSEC Index rallied Friday to its highest close since February 5, 2018, while the blue chip CSI300 Index recorded its highest close since June 15, 2015, according to Reuters. For the year, the SSEC Index advanced 14% and the CSI300 Index rallied 27%, buoyed by signs of an accelerating economy as China became the first major world economy to successfully contain the coronavirus.

The fading likelihood of larger stimulus payments due to roadblocks in the Senate, along with month-end buying activity, pushed the yield on the benchmark 10-year U.S. Treasury note modestly lower as the week progressed. (Bond prices and yields move in opposite directions.) Meanwhile, the broad municipal bond market recorded modest positive returns through mid-week, outpacing Treasuries. Crude-oil prices are back near $50 a barrel after briefly dropping below $0 for the first time ever in April.

The upcoming week will see the PMI composite, Unemployment Rate, and Factory Orders data being released.

Read our last weekly market update