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6th – 13th August 2021

Shares in Europe advanced as investors focused on economic recovery and brushed off concerns about rising coronavirus infections in key markets and signs of slowing growth in Asia. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 1.25% higher. France’s CAC 40 Index gained 1.16%, Germany’s Xetra DAX Index advanced 1.37%, and Italy’s FTSE MIB Index climbed 2.51%. The UK’s FTSE 100 Index added 1.34% on strong corporate earnings, and the British pound’s decline relative to the U.S. dollar.

Core eurozone bond yields ended roughly level, climbing into midweek and retreating on expectations that the European Central Bank could remain pacifistic for longer. Peripheral eurozone bond yields followed a similar pattern, but weakened slightly. UK gilt yields also ended roughly unchanged, although yields rose toward the end of the week as data showed strong economic growth in the second quarter, fuelling expectations that the Bank of England (BoE) may begin to withdraw its stimulus sooner.

U.S. equities gained ground with the market shrugging off the renewed spread of the coronavirus and its possible effects on future economic activity. In the S&P 500 Index, value stocks outperformed their growth counterparts. Most sectors advanced, led by materials. Energy stocks slipped on concerns that oil producers’ discipline on the supply side, and concerns that the upsurge in coronavirus infections could weigh on global demand.

The Senate passed a roughly USD 1 trillion bipartisan infrastructure package, including about USD 550 billion in new spending, that aims to rebuild traditional transportation infrastructure, improve access to broadband internet in rural areas, and upgrade the electric grid and water systems. Senate Democrats also approved a USD 3.5 trillion budget resolution, the starting point for a reconciliation bill that would address administration priorities, such as improving access to education and increasing support for families with children.

U.S. Treasury yields ticked up before retracing the move later in the week. Yields climbed, led by increases in long-maturity yields that helped steepen the Treasury yield curve. Remarks from several Federal Reserve officials supporting a sooner-than-expected tapering of the central bank’s bond purchases seemed to spur selling activity earlier in the week. On Friday morning, however, yields largely retraced their previous moves amid the release of a highly disappointing University of Michigan consumer sentiment survey.

Japan’s stock market noted modest gains for the week, with the Nikkei 225 up 0.56% and the broader TOPIX Index finishing 1.40% higher. The country’s deteriorating coronavirus situation kept risk appetites in check, as pressure grew on the government to tighten up restrictions further. Before the release of second-quarter economic growth data, Bloomberg noted expectations that Japan may have avoided a contraction, citing the country’s slow vaccination drive as a key factor. Against this backdrop, the yield on the 10-year Japanese government bond ticked up to 0.02%, while the yen was broadly unchanged at JPY 110.29 against the U.S. dollar.

Chinese stocks recorded modest gains despite concerns that increased government oversight of the country’s technology and private education industries would spread to other sectors. For the week, the large-cap CSI 300 Index added 0.5% and the benchmark Shanghai Composite Index gained 1.7%, according to Reuters. In the bond market, the yield on the 10-year government bond rose 6 basis points to 2.90%. The Renminbi currency was unchanged relative to the U.S. dollar. The official trade-weighted currency index– which measures the Renminbi’s value against a basket of foreign currencies– was close to a five-year-high.

In commodities, WTI crude for September delivery settled down 65 cents to $68.44 a barrel while October Brent crude lost 63 cents to $70.57 a barrel. Both fell further in late trading. O. That saw gold close up 1.5% on the day at $1,778.20 an ounce. Gold firmed to $1,781 in after-hours trading. At settlement, it was up 0.9% for the week.

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