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Weekly Market Update 5/2/21

US stocks posted their best weekly gain since November, with major indexes closing at record highs. Economic expectations and progress in vaccine distribution continue to underpin the narrative of the bullish market. Crude oil traded at its highest level in more than a year, rising nearly 10% for the week. Energy stocks outperformed as domestic oil prices hit their highest level in over a year on a surprising drawdown in U.S. reserves. Healthcare stocks lagged.

Investors kept a close eye on the Biden administration’s USD 1.9 trillion stimulus proposal during the week. On Tuesday, President Joe Biden met with Republican Senate leaders to discuss a compromise, with Republicans proposing instead a relief bill totalling USD 618 billion. It became increasingly clear, however, that Senate Democrats were prepared to move ahead alone using the so-called “budget reconciliation” process, which would require a simple majority in the chamber (including the tie-breaking vote from Vice President Kamala Harris).

Shares in Europe rose with global markets on hopes of a quicker economic recovery, spurred in part by hopes that the pace of coronavirus vaccinations would improve and by the prospect of more U.S. fiscal stimulus. The pan-European STOXX Europe 600 Index ended the week 3.46% higher.

Germany’s Xetra DAX Index and France’s CAC 40 lagged but posted solid gains Italy’s FTSE MIB Index, which rallied 7.00% after Mario Draghi, the former president of the European Central Bank, was given a mandate to form a new government. The FTSE 100 Index advanced 1.28%, as some disappointing earnings reports and a strong UK pound curbed its gains. The currency strengthened after traders reduced bets on a possible interest rate cut and data highlighted the UK’s rapid rollout of its coronavirus vaccination program.

The eurozone’s economy contracted less than expected in the fourth quarter, according to Eurostat’s initial estimate, which suggested that GDP fell 0.7% sequentially and 5.1% year over year. France’s and Italy’s economies shrank the most, while GDP expanded 0.1% in Germany and 0.4% in Spain. Economists expect a steeper GDP contraction in the first quarter due to the continuing lockdowns.

The Bank of England said it expected the UK economy to recover quickly over the year and return to its pre-pandemic size by the first quarter of 2022. The central bank lowered its forecast for economic growth in 2021 to 5% from the 7.25% it predicted in November but raised its estimate of 2022 GDP growth to 7.25% from 6.25%.

Japan’s stock markets surged for the week. The Nikkei 225 Stock Average advanced 4.0% (1,116 points) and closed at 28,779.19. For the year-to-date period, the widely watched yardstick is ahead 4.9%. The broader equity market benchmarks, the large-cap TOPIX Index and the TOPIX Small Index, logged similar strong weekly gains. The yen weakened and closed above JPY 105 versus the U.S. dollar.

Chinese stocks rose for the week. The large-cap CSI 300 Index gained 2.5% and outperformed the Shanghai Composite Index’s 0.4% rise. Sentiment improved following reports that Chinese e-commerce leader Alibaba Group, which has been the target of unfavourable regulatory actions, reached an agreement with regulators over the restructuring of its Fintech affiliate Ant Group, whose record USD 34.4 billion initial public offering (IPO) was cancelled in November. In Hong Kong, a record oversubscription by retail investors for the USD 5.4 billion initial public offering of Kuaishou Technology revealed huge investor appetite for Chinese tech companies. Shares of the video app company surged 161% in its Hong Kong public trading debut on Friday, making it the largest internet IPO since Uber went public in 2019, according to Bloomberg.

US Treasuries rose over the week, with the 10-year yielding 1.20%, German bunds are yielding -0.42% and UK gilts 0.52%. Futures for gold on Wednesday finished solidly higher after a report on U.S. inflation and as investors responded to a House vote on impeaching President Donald Trump, for a second time, days before he is set to relinquish power to President-elect Joe Biden on Jan. 20. February gold prices traded $10.70, or 0.6%, higher to settle at $1,854.90 an ounce, after settling 0.4% lower on Tuesday.

Economic data being released include the small-business optimism report on Tuesday, inflation on Wednesday, and consumer confidence on Friday.

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