Please see below for Blackfinch Asset Management’s latest Monthly Market Moves article, received by us yesterday 08/03/2021:
1st- 28th February 2021 (in GBP Total Return)
|FTSE 100||+ 0.65%|
|S&P 500 (USA)||– 1.21%|
|FTSE Europe (Ex UK)||– 0.94%|
|TOPIX (Japan)||– 1.87%|
|MSCI Emerging Markets||– 3.82%|
Market Overview – February 2021
February was a tale of two halves for global bond and equity markets. What started out as a relatively positive month quickly reversed into a period of turbulent trading. Almost exactly one year to the day since the initial pandemic sell-off, inflation concerns caused bond yields to rise, causing a negative impact on equity markets, particularly those tilted towards growth stocks.
Inflation Fears Shake Markets
- It has long been assumed that the economic recovery from the pandemic would cause some inflationary pressures. However, the fear that central banks, particularly in the US, may withdraw their substantial monetary policy support gripped investor attention.
- President Biden’s $1.9trn stimulus package, which includes issuing further cheques to large swathes of the US population, moved closer to being agreed. This added further fuel to the inflation flames, evidenced already by the $600 cheques issued in January causing retail sales to come in way ahead of market expectations.
- US Federal Reserve Chairman, Jerome Powell, did his best to reassure investors that the central bank will not consider raising interest rates, but his assurances did little to calm their nerves.
- These fears caused the value of the US Dollar to appreciate. This in turn negatively impacts Emerging Markets, where countries hold significant portions of their debt in Dollars and therefore servicing this debt becomes more expensive.
Is the End in Sight for Lockdown?
- More than 20 million people in the UK, almost one-third of the population, have received their first COVID-19 vaccine injection, with nearly 800,000 having received both doses.
- Prime Minister Boris Johnson set out his ‘roadmap’ for an end to lockdown measures in England, starting with children returning to school on 8th March. While proposed dates are in place for a complete easing of lockdown, the public, and investors, should not get complacent given the prevailing uncertainty in the interim.
- UK Gross Domestic Product came in ahead of expectations in December, reiterating the ongoing economic recovery.
- Despite this, the UK economy contracted by a record 9.9% in 2020 but has so far managed to avoid a double-dip recession.
Little Change in Central Bank Policy
- The Bank of England (BoE) left interest rates unchanged at 0.1% and kept its bond-buying programme at £895bn.
- The BoE also commented on the possibility of negative interest rates, stating that most banks would need six-months to prepare for such a move. While this could be seen as foreshadowing a potential move towards negative rates in the future, it at least gives institutions some comfort that any move would not be in the near term.
- The European Central Bank made no change to its monetary policy, keeping interest rates on hold as well as maintaining the €1.8trn Pandemic Emergency Purchase Programme (PEPP), confirming it will run until at least March 2022.
- Chairman Jerome Powell announced that the US Federal Reserve will need to remain accommodative for “some time” yet. While its programme of substantial monthly government bond purchases looks likely to continue, Powell noted this could be eased once inflation and employment targets are reached
With markets having a difficult month, it is important to recognise just how far they have come in the last 12 months. As we pass the one-year anniversary since developed equity markets started to decline, as the potential impact of the pandemic became a reality, we must keep in mind that markets have rallied strongly since their trough in mid-March 2020. Therefore, periods of profit-taking are to be expected, particularly in those areas that have rallied the strongest.
While an end to lockdown measures feels within touching distance for some countries, including the UK, the emergence of new variants of COVID-19 remains a concern. As such, we need to temper any excitement of a ‘return to normal life’, as there is still a long way to go. Even so, right now in the UK the signs are promising that we may have our freedoms returned to us come the summer.
Please continue to utilise these blogs and expert insights to keep your own holistic view of the market up to date.
Keep safe and well
Paul Green DipFA