Overview
A slew of better than expected Q1 reports from industry titans bolstered US and UK markets with weekly changes of 0.26% And 0.53%, respectively. These strong financials also trickled into Asia-Pacific markets, leading to weekly net gains in Japan, China, and India despite the ever-escalating COVID-19 situation. The US Fed’s maintenance of their current dovish monetary policy appears to have avoided any severe market fluctuations, postponing the potential ramifications of an inevitable rise in interest rates.
“If we see inflation moving materially above 2% in a persistent way that risks inflation expectations drifting up, then we will use our tools to guide inflation and expectations back down.” ~ Jay Powell, Federal Reserve chair.
However, with reports forecasting this rise to take place in 2023, I think we can leave that as a discussion for another day.
US - S&P 500
Biden’s political movements last week included proposing to double the capital gains tax rate for wealthy individuals to 39.6% to help fund social spending and unveiling a new target for cutting US emission by 50-52% from their 2005 levels by 2030. Unemployment benefit claims hit a new Covid low of 547,000 claims made last week, but the US economy still had roughly 8.4 million fewer jobs in March 2021 than in March 2020.
With earnings season in full tilt, some of the big players posted their results this week, including Tesla, Amazon, Alphabet and Ford. Tesla shares sank almost 3%, although the company beat expectations for both earnings and revenues buoyed by sales of bitcoin and regulatory credits. Bitcoin tumbled into a bear market this week due to a recent selling spate fuelled by worries about increased taxes and new regulation. Despite this, the cryptocurrency is still the best-performing ‘asset’ in 2021 so far, and ups and downs are par for the course when it comes to digital currencies. We also saw a tech stock rally on the back of better-than-expected earnings from the likes of Apple and Facebook.
More widely, these strong corporate earnings and optimism surround global recovery from the pandemic led to a record high for both the NASDAQ and S&P 500 on Monday. Tuesday saw a dip of 0.2% for the S&P500, with traders holding back on risky bets to await the outcome of the Federal Reserve’s two-day meeting. Federal Reserve Chair Jerome Powell said on Wednesday it was too early to change the central bank's dovish monetary policy despite the improving economic outlook, probably referring to the expansion of the US economy in Q1 of 6.4%, beating market expectations of 6.1%. US government bonds responded to this, edging slightly higher while the yield on the 10-year US Treasury bond, which influences borrowing costs worldwide, fell to 1.61 per cent by the late afternoon after the lack of change in interest rates was announced. The yield rose 0.9% throughout the first 3 months of 2021, signalling investors returning confidence to invest elsewhere in higher-returning investments. The yield has been falling since the beginning of April, which could be an effect of the geopolitical situations of other countries experience second waves in the pandemic, flocking to the US as a safe haven for capital.
UK - FTSE 100
The UK Government’s Covid response has pushed UK borrowing to the highest it’s been since WWII, at more than £303bn. Simultaneously, UK consumer confidence is now at the highest it’s been since the first Covid-19 restrictions began, reflected in companies reporting surges in demand for goods and services, with retail sales the strongest they’ve been since 2018 with no indication of slowing down since the reopening of non-essential shops. Despite the impressive US growth above expectations in Q1, Goldman Sachs expects Britain to grow faster than the US this year and has upgraded its forecasts for the UK economy.
On Tuesday, stocks were trading slightly lower than previously, finishing down 0.3%, despite better-than-expected results from both BP and HSBC, possibly also reflecting a restrained risk appetite while investors waited for the Fed’s latest policy guidance, mirroring the pattern in the US. On Thursday, the FTSE 100 touched a near pre-pandemic high of 7,018 before falling to finish the session near the flat line at 6,960. BP hit its debt reduction target early, stating it would resume share buybacks in the second quarter worth $500m. HSBC’s first-quarter profits were more than double those for the same period in 2020, posting pre-tax profits of $6.4bn, significantly higher than the $4.3bn which was predicted. The FTSE 100 firmed above 7,000 on Thursday, supported by subsequent further upbeat earnings reports from Unilever and Shell.
Energy and technology shares were seen to rise to the top of the blue-chip UK index last week, despite oil and technology companies being at opposite ends of pandemic-driven investment strategies. Energy producers benefit from economic recovery, while technology companies that rely on people staying at home and increasing screen time have attracted investors during lockdowns. Some investors have warned technology stocks may not continue to perform well in the medium term, with the market supporting more cyclical businesses like energy companies. Ahead of the current quarterly earnings season, we saw investors move away from technology stocks in favour of cyclical shares.
Europe: European equities strengthened over the week, with the Stoxx 600 index increasing by 20.4 (0.46%), heading back towards its all-time high reached on April 16. Technology and energy stocks led the charge, following robust quarterly reports from oil producers Royal Dutch Shell and Total SE. On Thursday, stocks in both Norway and Finland hit all-time highs, with Oslo Bors All-Share increasing to 1183 and OMX Helsinki 25 to 5206. European stocks appeared to lose some steam during afternoon trading, with Frankfurt’s DAX down more than 1% as government bonds yield ticked up following strong data out of the US and higher-than-expected inflation rate in Germany. This dip contributed to a fall of -1.15% over the week for the DAX, and despite the overall strong performance of European equities, smaller dips were also seen in Italy, Russia, and the Netherlands.
Asia-Pacific:
The continuation of the second wave of the COVID-19 pandemic is evident in many countries stock market performances. The Nikkei 225 fell 134.34 points or 0.46% to 28991.89 on Tuesday, reversing gains of 0.36% in the previous session, reflecting investors' risk sentiment after Japan declared states of emergency for Tokyo, Osaka and two other prefectures. Restrictions appear to have failed to slow the spread of the virus, with media reports from Tokyo showing crowded streets as people fail to comply with the order. Despite this, overnight rate-setters at the Bank of Japan bumped up their 2021 GDP growth forecast for the country from 3.9% to 4.0%.
India added over 1.2 million cases and 8,000 deaths in the week ending April 23rd, reflected in falls of nearly 2% in both the NSE Nifty 50 index and the S&P BSE Sensex. Despite the continuation of the critical situation, shares hit a near three-week high on Wednesday, with the benchmark S&P BSE Sensex rising 0.78% to 49,327.30, helped by strong quarterly results from financial and automaker companies.
China experienced their first population decline since 1949 and have not been exempt from the continuing second wave ramifications. Singapore and Hong Kong have called off the planned air travel bubble due to unstable control on cases. Despite this, at the close on Thursday, the Shanghai Composite index was up 0.52% at 3,474.90, underpinned by mutual funds’ high allocations to the banking sector and gains in financials again after some strong Q1 reports.
*Up to date as of 13:00 BST 30/04/21
Glossary:
Dovish monetary policy: Otherwise known as ‘loose monetary policy’ signalling low interest rates
Bear market: A market in which share prices are falling, encouraging selling
US 10 Year Treasury bonds: Bonds issued by the US Fed – Yield moves inversely to price Decreasing/extremely low interest rates increase the demand for bonds, increasing the price of these bonds, therefore decreasing the yield.
The US Fed: The Federal Reserve – The US Central Bank responsible for setting and enforcing monetary policy
Capital gains tax: A tax levied on profit from the sale of property or an investment low-interest.