Inflation & Covid Concerns Leads Equities Lower

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19/07/2021
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Inflation & Covid Concerns Leads Equities Lower

Global equity markets retreated last week as resurging covid-19 cases in many parts of the world and higher than expected CPI inflation in the US dented investor sentiment. Annualised US inflation jumped to 5.4% in May[1], the largest increase since August 2008 with the sharp rise in used car prices continuing to have a considerable impact. That led to increased speculation that the Federal Reserve may be forced to tighten policy despite the recent rhetoric from Fed Chairman Jerome Powell. Last Thursday, Powell once again reiterated the view that the current spike in inflation is just transitory although he acknowledged that is has been larger than expected[2].

In Europe, bourses declined with the more transmissible delta variant of the covid-19 virus now starting to gain traction in many countries around the region. The French CAC40 fell by -1.1% whilst in Germany, the DAX30 closed the week -1.0% lower. Having reached yet another intraday high earlier the week, US markets also pulled back with the S&P500 posting a weekly decline of -1.0%. Meanwhile in the UK, both large and mid-cap companies retreated sharply, the FTSE100 by -1.6% and the FTSE250 by -1.9%. One index that did record a weekly gain was the Nikkei 225 in Japan which rose by +0.2% despite Tokyo being placed under its fourth state of emergency[2].

Continuing the trend discussed last time, sovereign bond yields remained on the retreat as investors sought less risky assets. The US 10-year treasury yield fell by 6 basis points (bps) to 1.30% whilst in the UK, the equivalent duration gilt yield fell by 3bps to 0.63%. On the Continent, the 10-year Eurozone benchmark index matched the decline seen in the US 10-year to close the week at -0.38%.

In the commodity markets, oil prices declined ahead of an expected output hike from OPEC and its partners. Brent crude dropped to $73.67 a barrel, a -2.6% with OPEC eventually agreeing over the weekend to increase production to help stabilise the market[3]. Elsewhere, copper also fell with the metal falling by -1.0% to $9,391 a tonne whilst gold inched higher to $1,812 an ounce, a +0.2% weekly increase thanks in part to some weakness in the US Dollar.

 

Week Ahead

Housing sector data are amongst the standout figures due in the US this week with building permits, housing starts and existing home sales all due before the close of play on Thursday. In the UK flash PMI readings for July will provide an early insight into how the manufacturing and services sectors have performed so far this month with retail sales data also due on Friday morning. The government’s finances also come back into focus with Wednesday’s public sector borrowing figures.

Flash PMI data are also published in the Eurozone this week whilst the European Central Bank hosts its monthly policy meeting on Thursday with no changes expected to be made to interest rates. In Japan, the minutes from the Bank of Japan’s last policy meeting are published although headline data is in short supply this week with core-CPI the only figure of note. There are no major macro figures due from China on this occasion. [4] 

 

Read last week's market update

Bond Yields Retreat As Covid Cases Surge Once Again

 

 

[1] U.S Bureau of Labor Statistics - 13.07.21

[2] T. Rowe Price - 16.07.21

[3] OPEC - 18.07.21

[4] Forex Factory - 18.07.21

 

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