Weekly Market Update – 26/04/21

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%.